How are time and the value of money related?
Let's look at the following example:
You want to buy a house. The Contract price is $240,000.00. The loan is for $200,000. The term is 30 years and the fixed rate is 6%. Your loan payment would be $1199.10 / month. Total payout over 30 years is $431,676. Total interest paid is $231,676.
Therefore the lender will make $231,676. for lending you $200,000.
Now let us consider the borrower who can not make a decision or wants to wait until home prices hit "rock bottom". If the borrower were to buy now, his scenario would look something like the above example. If, however, he waits until whenever, we can assume that interest rates will probably start to climb well in advance of the housing price increase, and he will wind up paying much more. Same scenario but interest is now 7%. Total interest paid is $279,017.
Which means the borrower will pay out an additional $47,341 in order to acquire the exact same home. Now, either the home must appreciate by more then 20% in order for the borrower to realize a break even, or the home must have been purchased at a 25% reduction from the original selling price in order for the borrower to break even. Either way, he would have been better off buying when money was at 6%.
If interest rates rise to 8%, then the repaid interst would be a whopping $328,311.
What are buyers waiting for??????