If You Delay Buying Now You May Pay The Price Later

Posted at 2:01 AM, Mar. 3, 2008

While it is possible that home prices could drop, in the Richmond Metropolitan Area, we are much less affected by the current downturn than in the rest of the state or the rest of the country, even in the face of home sales being down over the same period in 2007;.  It is more conceivable that any decreased prices will more likely be accompanied by increased financing costs due to rate cuts by the Fed. Yes, that's right - when the Fed drops rates, sometimes, and often. mortgage rates actually go UP.  What this could mean to prospective buyers is that any money they think they are "saving" on paying "less" for a home by waiting a few months will be offset by the buyers ending up with a higher interest mortgage rate making “playing the waiting game” or "timing the market" a useless endeavor.

This rate increase isn’t just speculation. Just a couple of weeks ago, in early February, the fixed mortgage rate jumped a full half-percent, making it the fastest rate increase in 20 years.

The data below based on a recent Time Magazine article demonstrates how even as home prices may drop, monthly mortgage payments basically stay the same; due to increased interest rates:

Scenario 1:
Prices decrease by 5% and interest rates increase by 0.5%

Scenario 2:
Prices decrease by 10% and interest rates increase by 1.0%
Today Scenario 1 Scenario 2
Home Price
$218, 900 Home Price: -5%
$207,955 Home Price: -10%
$197,010
Interest Rates
6.04% Interest Rates: +0.5%
6.54% Interest Rates: +1.0%
7.04%
Monthly Payment
$1,054 Monthly Payment
$1,056 Monthly Payment
$1,053
Table: Kadlec, Dan. "Ignore the Headlines!" Time 25 February 2008

The moral of the story???  Waiting to buy does not guarantee that you have made a better investment.  A rise in interest rates can erase any advantage you might have gained by waiting.  Remember, real estate is a long term investment.