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Will home prices drop over the next 12 months?

By Rod Kjerstad

Real Estate Agent with Realty Solution Advisors Phoenix, Arizona

October 25, 2009 01:48 PM

Some say yes.

Is there is more to consider than just the price you pay for the home when you make your decision to buy or not to buy. What effect do interest rates have on the price you pay for real estate?

CNN aired a great story on interest rate effect on their “Your Money” show.

It goes like this;

Let’s say you buy today at a price of $177,000 and you get a 30 year fixed 5.0% mortgage. The total cost of the home after you pay that mortgage for 30years will be $378,000.

But what if you waited a year to buy and the price of that same house fell to $158,000. It would be great to buy the same home for $19,000 less. But what if interest rates rise as many think they will. So, let’s say you do buy that home a year from now at $158,000 but interest rates have gone up to 6.5%. What affect will that have on what you will pay for that home over the life of the loan? Answer; $391,000. 13,000 more even considering you bought the house for less by waiting a year.

There are a lot of variables to be considered, like refinancing down the road at a lower rate, or how much will it cost for you to rent while you wait and hope for prices to fall and how long you own the home.

The point is price alone is not the only thing to think about when buying real estate. Financing costs also need to be considered.

Always consult with an appropriate expert when making major financial decisions. And once you find a top notch professional, be sure you refer him or her to your friends. Friends don’t let friends use the yellow pages!

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Will home prices drop over the next 12 months?

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