The following was sent to me by Joseph Rand, Managing Partner of Prudential Rand Realty. It truly is great food for thought for buyers trying to "time the market."
Here Goes....
There was a great article in the New York Times on Sunday about the interplay between prices falling and rates rising. The basic gist is this: buyers who are waiting to see a bottom in real estate prices might not save anything, since a small increase in rates generally wipes out any savings on the sale price.
Think of it this way.
Option #1: $500,000 home, 10% down, 6.5% interest rate.
$450,000 30-year fixed mortgage at 6.5% rate is a payment of $2,844.
Option #2: $450,000 home (price is down 10%), 10% down, 7.0% interest rate
$405,000 30-year fixed mortgage at 7.5% rate is a payment of $2,831.
In other words, a 1% shift in interest rates (which is possible) would pretty much wipe out any savings from a 10% decrease in prices.
Given that prices are already down about 10% across the region, we might not see much more significant declines in the next year. But we are likely to see rates creep up between now and December.
The bottom line is that if a buyer is simply not ready to buy, they shouldn't buy. But if they're not buying because they're waiting for prices to hit a bottom, they might be waiting for no good reason. A 1% increase in rates will pretty much wipe out any savings they get from buying at the bottom.
Visit my website at http://www.donnacox.com/ to see the wonderful selection of homes for sale in Rockland County. Or, give me a call on 845-641-8613; I'd love to hear from you.
Donna Cox
Associate Broker
Prudential Rand Realty
Comments(0)