If you want a dry martini, it takes about one part dry vermouth and eleven parts vodka or gin. Stir or shake depending on your beliefs, and drown two olives. Eleven to one is what makes the martini dry.
So you don't want to make a martini? You want to buy a home? Eleven to one is also what home buyers should remember when they are trying to decide whether they should buy now or wait a while. If the interest rate on your home loan increases, the price of the home must decrease at an approximate ratio of eleven to one to keep the same monthly payment. If rates increase by 1%, your buying power dropped about eleven percent. So, that $200,000 home you like would need to drop in price to under $180,000 just to compensate for the increase in interest.
Right now, interest rates are about as low as they can get. They may remain the same or close, but it's not likely that there will be substantial rate decreases. It would not be particularly surprising to see a 1% increase in rates in 2012. Will the price of homes you like drop by 11% this year?
If you're trying to decide whether to buy now or wait a while, keep in mind that, even if home prices were to drop, there's a fair chance that you may have to pay more to own that lower priced home. It takes more luck than knowledge to predict the future accurately, but your plans will be affected by the home price change to loan interest change ratio. While you're trying to sort things out, keep that dry martini in mind. Eleven to one.
Do you need some information to help with your lifestyle upgrade decision? For market-specific information about your neighborhood of choice, your choice for a style of home, and your choice for a price target, call or email now. If you would like to arrange a convenient time for a home buying strategy consultation, call me now. There is no charge or obligation for this consultation.
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