The time to buy? Now!

In my travels throughout the week the conversation with many potential clients, friends and family always comes around to when is the best time to buy? The first thing people always point out to me is “Well prices are going down so there is no harm in waiting 6 months to a year, time is on my side, right?” Wrong! True, home prices don’t look like they are going up anytime soon but what many people don’t consider is interest rates on mortgages. This has a much greater effect on your payment and how much your home will cost you over time than the price will.

Let’s consider current market conditions and the potential future market conditions. For our case study let’s assume the purchase price of a home today is $200,000. You the buyer are going to put down 5% of the purchase price and get a mortgage for the rest. Not an uncommon scenario. Current market conditions are in the 4.5% range. Principal and interest payment on a mortgage of $190,000 is $962.70. Now let’s assume the savvy shopper says I am waiting a year because I know prices are coming down. It is now June 2012. Let’s assume a 5% decline in home prices. So that same house on Main Street with the white picket fence is now priced at $190,000. Great you say I have saved $10,000 by waiting. Not so fast.

What has happened while you have been waiting for price declines is that interest rates have started normalizing and they are now around 6% which is not totally out of the question, depending on how much inflation has started to affect the market place. Your mortgage amount with 5% down would be $180,500. Another great savings, you are borrowing less! Wrong again. Your payment on that lower mortgage amount at 6% is $1082.19. An increase of $119.49 or roughly 12% higher than the previous, more expensive house. Multiply that out over the 30 years and that same great home you saved $10,000 actually wound up costing you $43,016 more to buy. What if home prices fall 10% in this same time period? Your payment would still be $62.53 higher than it would be right now. Still a loss in the long run. Unless you are a cash buyer and congratulations if you are, the time to buy is staring you in the face!

I hate to see a great opportunity pass people by. This bear market in real estate will come to pass and so will these incredibly low rates. Talk to your local realtor and more importantly contact a mortgage professional like myself to see what market place you should be in. There are more and more stories on the news letting us know that renting has become more expensive than paying a mortgage in many cases. Now is the time to make a great business decision for yourself and your family and buy a home.