Are you one of the people who is trying to “time the market” and wait for home prices to go down before you make a purchase? Doing so may not be as wise as you think.
Investment experts in different fields acknowledge that attempting to guess when the best conditions are present is an inexact science at best, even for industry specialists. The real estate market is no exception. In your attempt to find the most favorable balance between interest rates and sales price, you may just outsmart yourself and cost yourself a tidy sum of money.
Market upswings and downturns are rarely evident until after the fact. Consider the following: If you’re ready to buy today but decide to wait one more year and the price of the home goes down a few thousand dollars but interest rates are half a point higher, what have you saved? Nothing—in fact, had you purchased, you’d have a year’s worth of mortgage-interest tax deductions and a 12-month head start on building equity. Furthermore, current interest rates are still near historical lows. All indicators show that as the economy continues to recover interest rates will rise as soon as this summer. Everyone acknowledges that interest rates are crucial in home affordability. But, often times the impact of these figures is over-looked. This simple example will illustrate the magnitude of the effect: For the purchase of a $200,000 home a rate increase of 1% equates to $20,000 (a 1% change in interest rates equates to $10,000 per every $100,000 borrowed). Therefore a buyer who purchases while rates are low could purchase a $220,000 home for the same cost. Conversely, a buyer who waits until after rates rise would have their buying power reduced.
You don’t have a crystal ball—no one does. Any real estate expert can tell you that trying to time the market is risky and short-sighted. Over medium- to long-term periods, real estate appreciates steadily and is a solid investment. Any potential savings you might see from price reductions will be offset by rising interest rates. The point? If you’re ready to be a homeowner, it’s a good time to buy a home and acting now makes sense and will pay off in the long-term.
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