Home buyers who have been sitting on the sidelines are still asking if they should buy now or wait. Maybe housing prices will drop further?
The fact is that interest rates are currently at an all time low with 30 year fixed conventional rates below 5% with no points (assuming good credit, documented income etc.).
Many buyers have been reading the negative news about the economy and are saying, "I'll bet that housing prices will drop further, maybe another 10%"
So what should you do?
The Fed has been keeping rates low by purchasing mortgage backed securities at the tune of $850 billion so far this year (source: WSJ, 9/25/09). This program is scheduled to end in March of 2010. When this happens, rates are surely to rise.
So let's ask the question: is it better to wait until prices drop another 10% before buying or buy now?
Let the facts speak for themselves:
Low Rate, Buy Now Scenario
Purchase Price: $400,000
Down Payment: $ 80,000
Interest Rate: 5%
Mortgage Payment: $1,717
Wait for Lower Price, buy later Scenario
Purchase Price: $360,000 (10% price drop)
Down Payment: $ 72,000
Interest Rate: 6%
Mortgage Payment: $1,726
So, if you wait until the Spring of 2010 hoping that prices will drop another 10% and (assuming) rates rise 1% (due to the Fed stopping their purchase of mortgage backed securities - or cutting back on their program), you're at the SAME MONTHLY PAYMENT AS BUYING NOW AT THE LOWEST RATES IN YEARS!
Again, we're making a lot of assumptions but it sure gives you something to think about!
So if you're thinking of buying, I'd go ahead now instead of waiting to see what may or may not happen.
We'll revisit this scenario in a couple of months and see if our advise was worth considering.
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