I'm going to wait until ..... (Part Three) "I THINK PRICES WILL DECLINE FURTHER" Even if they do, it still could cost a buyer considerably more.
If renting, the buyer continues to pay the landlord's mortgage - plain and simple - and continues to have nothing to show for that huge monthly outlay.
But the most important factor to consider - interest rates. If prices decline 5% and rates increase by just .5%, the $1575 monthly payment on $237,500 ($312,500 at a 5% decrease is $296,875, $237,500 is 80%) at 5% (vs. the $1566 4.5% on $250,000) will cost the buyer another $756 over a 7 year average period a homeowner owns a property. A .5% movement in rates can happen in a matter of days.
Now take the scenario that rates increase 1% to 5.5%, still a very low interest rate. Maybe that $756 doesn't sound so bad, but if rates increase by 1% it increases the monthly payment by $82 a month costing the buyer close to $7000 - $6888 in that 7 year period. If you take the $15,625 home price savings ($312,500 at a 5% decrease is $296,875), the annualized cost savings on $15,625, is $520.83, $3645.81 for 7 years, a HARD COST to the buyer of $3,242 ($6888 less $3645). A 1% increase again, could happen quickly and is not unlikely considering the discussion about looming inflation that persists.
Interest rates in late 2007 thru late 2008 were consistently in the 6% - 6.25% range - certainly not alarming, but I don't think I need to say anymore about what the real costs of increasing interest rates are to buyers even in the face of any further price declines.
For more information on the Cost of Waiting to Buy:
I'm going to wait until ..... (Part One) http://activerain.com/blogsview/1883689/i-m-going-to-wait-until-part-one-
I'm going to wait until ..... (Part Two) http://activerain.com/blogsview/1883901/i-m-goint-to-wait-until-part-two-
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