Dan Kadlec, in his Right on Your Money column in Time Magazine this week, makes a good argument for buyers who are fence-sitting in depreciating areas to buy their first homes now, rather than waiting. He says, "Let's say that you are emotionally ready to be a homeowner. You have good credit, plan to stay put for at least five years, and have been waiting for the perfect entry point. It's time to get serious---before an inevitable rise in interest rates wipes out your advantage."
Jim Svinth, chief economist at Lending Tree, agrees that "The thing that will make home prices stop falling is the very same thing that will push mortgage interest rates higher." So anything you gain by a further drop in prices may be offset by rising financing costs.
They gave an example of a typical home...certainly atypical in our area...selling for $218,000. With 20% down, and a 30 year mortgage at 5.5%. Monthly principal and interest would come to $994.31. If the same house sells for only $197,010 (down 10%) in a year, but inflation is a threat and the Feds jack up rates. The interest could be 6.5% by then, and the payment is $994,94...you'd have saved nothing by waiting, and missed out on living in your own home for a year.
Multiply these figures by 4 or 5, and they're just as applicable to our area.
If you want to read the full article go to Time Magazine.com.
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