In my previous post, we went over getting started with your home search and the importance of beginning with or at least getting handled your financing early on – hopefully, that means before walking into homes you’re thinking of buying. Today, let’s look at interest rates and their effect on buying power.
Lately, I’ve received calls from buyers who had wanted to buy in the last year but felt they were priced out of the market. Now, they are back, wondering what their next move should be. They want to pay what prices were over a year ago, not what prices are now with demand being high. Interest rates are expected to rise and that may decrease demand in many areas; however, is it really worth waiting for prices to come down (if they come down)?
Let’s look at an example. If you are considering the purchase of a $600,000 home and you want to “save” money, so you decide to “wait” until prices fall by 5% – or $30,000. But let’s look at the numbers if you were to purchase the $600,000 home today at today’s low interest rates:
|Amount Paid Over Life of Loan||$800,263.74|
But let’s say you decide to wait in the hopes of purchasing the home for $575,000 … and in the meantime rates creep up to 5.5%.
|Amount Paid Over Life of Loan||$940,258.59|
Over the course of 30 years, that additional $389 you pay each month adds up to an additional $139,995. The point of the story? Waiting to “save” money by hoping prices will drop may well cost you far more than your expected “savings”. It will cost you the appreciation you could earn while the market is hot and prices are rising.
If you’re interested in the current status and potential of a particular neighborhood or house to determine how it might fit with your real estate and investment strategy, feel free to give me a call to discuss.