Why NOW is the Best time to Buy A Home in Maryland?

Why NOW is the Best time to Buy A Home in Maryland?

Warren Buffett famously once said: "Be fearful when others are greedy, be greedy when others are fearful."

Multimillionaire hedge fund manager John Paulson said. “If you don’t own a home, buy one. If you own one home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home.”  Why should we care what this people thinks? Well, let's have a closer look at the numbers.

Since the peak in home prices, mortgages rates have declined and affordability has risen dramatically. Housing affordability is at levels not seen since prior to the early 1990s and is almost twice the level that it was in April 2006 (the peak month for house price levels) when housing was the least affordable it had been in two decades. While real estate professionals often say that "now is the best time to buy a home in Maryland" it is clear today that April 2006 was probably not a good time to buy, while now may well be the time.

Mortgage rates seem to strike a new record low each week. This historically low interest rates are the key…and they aren’t likely to hang around for long, though the impact to housing demand has been diffused by ongoing economic sluggishness. Yet, those who can afford to buy a home in Maryland should not let the inability of others affect their decision making now, or risk missing an opportunity to secure unprecedented low fixed mortgage rates.

Buyers who “choose to wait until prices come down more” are gambling that interest rates will hold steady or drop. The truth is even a 10 percent drop in home prices is nullified by a 1 percent increase in interest rates. The figure below illustrates how this works for buy a home in Maryland with $300,000purchase price and the relative likelihood of each scenario.

To figure out which was a smarter bet–counting on home prices to fall further or interest rates to rise–our research department took the last ten years of monthly home price and mortgage interest rate data and ran the numbers to see which was more likely: an increase in mortgage rates or a further drop in home prices. Here’s what we found:

•     A one percent increase in mortgage rates is ten times more likely to happen than a ten percent drop in home prices.
•     A one percent rate increase more than offsets a ten percent reduction in home prices.
•     When interest rates fall by one percent, the total interest paid is almost three times more than the interest savings from a ten percent drop in home prices.
•     The probability of both happening at the same time is ridiculously small, and homeowners would still pay 15 percent more in interest over the life of the loan.

Interest rates have dominated the news in recent months as we’ve shattered record low after record low. Potential home buyers need to understand the positive financial impact low interest rates have on the cost of home ownership and the thousands of dollars that can be saved over the life of a typical mortgage loan. For those who can afford to buy a home in Maryland, trade up, or invest, our current market presents a lifetime opportunity.