Waiting for Interest Rates to go Down?

Here in Washington, DC, the real estate market is a little goofy, leaving buyers sitting on the fence wondering what to do. There are far fewer people putting their homes on the market. But homes that are for sale seem to be taking longer to sell, and while there are some bidding wars, they are fewer and far less bloody than they have been over the past couple of years. And a lot of us are blaming it on the recent interest rate increases. 

This has a lot of would-be buyers scratching their heads. "Should I wait," they ask, "or should I jump in now?"

Here are some things for your fence-sitting buyers to think about as they try to figure out what to do:

• For most buyers, the interest paid each year on their mortgage is tax deductible, so Uncle Sam may absorb some of the added cost. Their tax professionals could give them a good idea of their savings.
• When interest rates do go down, the number of people actively trying to buy will go up. So will the number of serious bidding wars - and home prices as well.
• When they settle on their new home, they typically sign a mortgage that will bet paid off over the next 30 years. But they are likely to refinance the home many times during their tenure. When I bought my home in the mid-1980's, I was thrilled to get a rate of 13 percent (they had recently come down from 18 percent). It's been refinanced five times, and the current interest rate is around 3.5 percent.
• It might be a good idea to consider an adjustable rate mortgage. Last week the 7-year ARM's looked great.

Buying a house or condo is always a little scary. Buyers may fear that once the ink is dry on all of the settlement paperwork, the market will go completely pear shaped, Then they will lose a job just a a big old hurricane will come along to flood the basement and blow off the roof. And while I'm not saying that bad things never happen, every poll I've seen shows that the vast majority of people who buy homes are really glad they did, regardless of what was going on in the world around them when they took the leap.

I'm advising my own buyers that they can buy now and have close to a "normal" transaction where they don't have to do anything completely crazy to get an offer accepted, or they can wait for rates to drop and find themselves in another crazy sellers' market that can make getting a great house an expensive, not to mention nail biting, experience.

Oh, and after a while, that silly fence really gets uncomfortable! 

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