Saturday, February 12, 2011

The Cost of Waiting For Home Prices to Fall

The Cost of Waiting
For Home Prices to Fall

 The are numerous people out there who want to buy a home, but are waiting for home prices to hit bottom. They want a guarantee that they are purchasing at the best possible price. In some markets, you may see a little more dropping of prices, especially in areas really hit by the foreclosure market (of which Massachusetts has one of the lower rates). But waiting may not be in your best financial interest. You should be concerned with the cost of buying a house, which is quite different from the price of a house.

The real cost of a house is made up of the price and the interest rate you will be paying.

The National Association of Realtors just reported that the average home price in the 4th quarter of 2010 rose .2%. In other words, price remained steady. A buyer who delayed a purchase might find solace in the fact that prices have not increased. However, the other news released the other day paints a different picture. Mortgage interest rates now average 5.05%, up from 4.17% from the middle of the last quarter.
By sitting on the sidelines for the last 90 days a purchaser lost:

    - $89.44 a month
    - $1,073.28 a year
    - $32,198.40 over the thirty year life of the mortgage

If you buy a $340,000 home, double all these numbers.

It also means that if you qualified for a $300,000 mortgage three months ago, today you would only qualify for a $272,000 mortgage.  The longer you wait, the less you will be able to afford if the interest rates keep rising. That means you either have to buy a home with less of the amenities you want or maybe located in a less desirable neighborhood, or you have to come up with a larger down payment.

Bottom Line
Even if prices fall another 10% this year, the cost of a home will increase if interest rates go up more than 1%. If you are in the market for a home, you should not worry about where prices are going. You should be more concerned about where the interest rates are going, and what the cost of buying a home will be later this year or in 2012.

Jim Armstrong
The chart and some of the details are from For more details, please go to:

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