This blog is directed to all the Buyers that are waiting in the sidelines for prices to drop further.
Last month I checked with one of my mortgage brokers and he informed me that interest rates were between 5.375% and 5.500%. I called him yesterday and he informed me that interest rates went up to around 6%. That would mean that if you are a Buyer looking at homes or condominiums around $ 400,000 and waiting for home prices to drop further, just because of the 1/2% interest rate increase, your purchasing power went down approximately $ 22,000.00. This is playing "Russian Roulette".
If you are purchasing a home or a condominium were you plan to reside for a few years, it's not worth the waiting. Unless you think that the home you are viewing for $ 400,000 it is going to drop to $ 300,000, in my view, an unlikely scenario, you should not wait. If interest rates begin going up rapidly, as it is the case so often, your purchasing power is going to be affected. If the interest rate goes up another half a point, your purchasing power will decrease another $ 22,000.
So, if you were planning to purchase that home that you liked last month for $ 400,000, when interest rates were 5.375%, today, at 6% you will have to purchase the same home for $ 378,000. I do not know if you could do it. And, if you wait for another month and the interest rates go up another half a point, then, you could not purchase that home unless they accepted an offer of $ 356,000. Even more unlikely.
I keep on bringing up the story of my own home purchase many years ago. I bought my home when the market was up. I was very upset because I had to pay $ 10,000 more than the Bank's appraised value.The Seller told me "you don't have to buy it, there are many other people interested". I bought the home anyway. After a few years, my home went up in value and I do not even remember why I got so upset. In fact, I do not even remember how much I paid for my home 17 years ago.
My advice to all of you Buyers waiting for prices to drop further. If you are thinking of living in the home, condo or townhouse for a few years, don't keep on hesitating; just "jump in".
Isaac Bensussen http://www.besthomesinlajolla.com/
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