Our housing market in Sarasota is staying steady and we do foresee a rise in interest rates as we get into 2011. Even if you see a nominal decrease in the average home price, it may not be worth an increase in your interest rate over the next 30 years. Here is an example:
Buy a home now for $350,000
Interest Rate @ 4.5%
Monthly P&I @ $1,773
Total Payments and Interest over 30 years = $638,428
Now, lets say you wait 8 months and this same home were to dip in value by $15,000 down to $335,000. Wow, it's a good thing you waited, right? Not so quick. During that same 8 months...interest rates go up. Your once 4.5% interest rate is now 5%. How does that look? Let's see...
You waited and paid $335,000
Interest Rate @ 5%
Monthly P&I @ $1,798
Total Payments and Interest over 30 years = $647,402
Now, under Option A your payments were lower and you paid a mere $288,428 in interest over 30 years.
How does Option B look? Even though your purchase price is less, you still see a nominal rise in the monthly payment. It doesn't look bad on the surface, but let's dig a little deeper.
On this loan, you paid $312,402 in interest over the 30 years...$23,974 more than Option A.
Your $15,000 savings just turned into nearly $24,000 in extra interest payments!
Of course, this is all dependent upon interest rates and property values. Most of us seem to agree that prices may go down a bit in 2011 as new foreclosures and short-sales come on the market out of the "shadow inventory". However, most analysts also agree that we will likely see an increase in inflation and interest rates as well. Only time will tell.
One thing is for sure...prices right now are at historic lows. In some cases, prices in Sarasota are as low as they were in the early 1990's. We also know that we have interest rates that are rock bottom and can not likely go any lower. With this information in hand, how does it not make sense to make a purchase now? Even if you see a nominal depreciation over the next year, the prices will come up at a steady rate over the long term. According to the graph above, nationally we can expect to see a 10% appreciation in home prices over the next 5 years.