We frequently get asked the question as to where the market is going. In our opinion, even the best experts can’t say because we are truly in unchartered waters. That being said, being analytical, we like to use what we do know. We DO know mortgage rates are at record lows. We DO know rates are at record lows because the housing market is in the dumps. We DO know that the rates will go back up when the housing market turns around. So here is an argument for buying now as apposed to waiting for the “bottom” of the market, which by the way you only know when you see it in your rear view mirror:
Assuming someone wants a $1000/month payment to match their $1000/month rent payment:
Assuming $200/month in taxes/insurance
P&I of $800/month
At the current rate of 4.875%, $800/month P&I finances a loan amount of $151,000
At a great rate of 6.000%, $800/month P&I finances a loan amount of 133,000
As you can see, for the same exact payment, you can buy almost $20,000 more home right this second simply because of the ultra low interest rates than if you were at a very good rate of 6.000%. The question for the client then becomes, do you risk trying to time the market and see if that home will go down an additional $20,000 but risk the rates going up (double risk), or do you buy now knowing the rates really are not going to get better than this and take the risk the home may go down in value a little more. Since I am not a risk taker, the answer is a no brainier.
To show one additional example:
P&I of $1200/month
4.875% at 1200 P&I finances 226,000
6.000% at 1200 P&I finances 200,000
As you can see, as the purchase price goes up, the dollar difference becomes bigger and bigger due to the varying rates.