I'm sure many buyers have heard real estate agents proclaim "today is the best time to get off of the fence and buy." I'm also sure many remember hearing similar proclamations in 2005 and knowing what happened after the bubble burst many buyers are too frieghtened to take the jump. Add the forecast of a second wave of foreclosures which could bring home prices down yet again and the buyer's retort is "we haven't hit bottom yet and I'm not going to buy until the time is perfect." This is of course the ultimate plan for any investment and makes 100% sense, but there's more to the numbers than the sales price. In fact, even if we see another 10% drop in sales price the same home that cost $225,000 today, but may drop to $202,500 later on could end up costing you more even though you paid less for it. This is due to the fact that interest rates will inevitably rise and many economists are predicting rates around 7% before the year is through. Now 7% is historically a great rate, but compare the numbers with a higher sales price at a rate of 5% and you'll find out the deal that looked better on the surface will actually cost you a good bit more. Here's the breakdown using a property that just went under agreement in Tapestry in Holland.
143 Randolph Ct. a 3 bedroom 1.5 bath, 1,572 sq. ft. townhome with a basement was on the market for 79 days at $225,000. Most likely the home didn't fetch it's asking price, but since we don't know what it did receive we'll use the asking price to run our numbers using an FHA loan which only requires a 3.5% down payment.
Purchase Price: $225,000
Rate: 5%
Principal and Interest: $1,185.97 monthly
Now, lets say the market does drop another 10%, but as many expect once the Fed stops purchasing loans the rates will begin to rise.
Purchase Price: $202,500
Rate:6%
Principal & Interest: $1,192.09 monthly
Even with the price coming down 10% a slight increase to what would historically be considered a great rate and your monthly costs actually go up a bit. Here's what it looks like if the rates go higher.
Purchase Price: $202,500
Rate: 7%
Principal & Interest: $1,322.84
So the difference between a rate of 5% and 7% is an additional $136.87 per month in mortgage payments. After one year that's $1,642.44. After 30 years it comes to $49,273.20. So the property that you bought for $22,500 less now ended up costing you $49,273.20 more for a difference of $26,773.20.
With rates hovering around 5% and the Housing Tax Credit ready to expire now is the time to get off of the fence and get a piece of the American Dream. To review your specific situation to see if buying is the right choice for you give me a call, or shoot me an e-mail and we'll sit down for a No Obligation Consultation.
To learn more about local neighborhoods in the Newtown, Holland, Yardley, Richboro, and surrounding areas check out my website http://www.buckscondoking.com There you'll find info on local neighborhoods such as Newtown Grant, Newtown Gate, Village Shires, Tapestry and many more.
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