Have you read this in Business Week. My first thought, wow! harsh! But Mark Roth makes excellent points for those on the fence. Namely interest rates are at the lowest in 40 years. He noted that in the late 70s, rates hit 18%! In the 80s, when rates dropped from 12% to 9%, my parents practically danced their way to the 1st refinance. Mr. Roth points out the history of previous rates in terms of one’s purchasing power.
I happen to agree with his prediction that as the economy becomes more stable, rates WILL rise to hedge inflation. My prediction – that by this time next year, rates will have risen 1-2% at a minimum.
On a sale price of $250,000:
- Assuming a 5% down payment at 5% interest on a 30 year fixed, your monthly principal and interest payment would be $1275.
- If rates rise to 7%, your payment increases to $1580/month. Some buyers may be on the fence because they fear prices may drop further. Consider this.
- If there is a 10% decrease in price and the $250,000 falls to $225,000 in one year, but you wait to purchase and the interest rate rises to 7%, your payment will be $1422.
- You spend more money per month plus at the higher interest rate, you pay more interest over the life of the loan.
- Real estate appreciation is always a cycle and as the economy stabilizes, values will level out. Steve Harney is already analyzing data this is happening in many markets and that this will occur by 2014 in many states. Making a home purchase is still a decision that should be weight carefully and is not for everyone. One important consideration will depend on how long you plan to stay in the home.
Mark Roth summed up the article, “What I’m trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.”
The blog owners do NOT think you are stupid or broke if you don’t buy a house right now. But if you are considering purchasing a home and would like yo discuss it, we’d love to sit down and help you weigh options. Source