Waiting for Market Bottom Could Cost You More

Rising interest rates could eat up any savings you'd enjoy by waiting for prices to fall.

Posted by Teresa at MSN Real Estate on Monday, February 28, 2011 10:10 AM

No one knows when home prices will hit bottom, and the reality is that it won't happen everywhere at the same time.

Even if you have a great crystal ball, the state of the real-estate market should never be the determining factor in deciding when to buy a home. More important are the state of your finances, the state of your job and how long you intend to live in the area.

But if the time is right for you to buy, you may be better off acting now rather than waiting for the bottom of the market. This is why: While home prices may fall, interest rates almost surely will rise, and the two factors together will determine how much you actually pay. With higher interest rates, you could end up paying more for a cheaper house.

Alison Paoli of the Zillow blog offers three scenarios for a typical home she calls

100 Main St.

:  

• Buy the home for $300,000 in November 2010 with an interest rate of 4.1%: Monthly payment is $1,159.
• Buy the home for $294,600 in January 2011 with an interest rate of 4.7%: Monthly payment is $1,222.
• Buy the home for $276,924 in January 2012 with an interest rate of 5.1%: Monthly payment is $1,285.  

Not only are interest rates rising, fees for loans are increasing as well, starting April 18.

Other factors, such as negotiation and supply and demand in your chosen neighborhood, will affect how much you pay for the house. Factors such as your credit score will affect which interest rate you actually pay. The ones we report are averages.

But both price and interest rate are important when calculating when to jump into the market.

Emily Trinks, writing at Zillow Real Estate Research, has some additional calculations. She tells would-be buyers:

With so much talk about when and where the real-estate market will hit bottom, it’s easy to forget that the home prices are only one part of determining how much buying a home will actually cost. We get caught up looking at the moving parts independently and often forget that, like airline seats, neighbors might be paying vastly different amounts for practically the same product.

Sue Tanea
Keller Williams - Greenbrier
Office phone: 757-635-2333

suetanea@verizon.net

http://www.suetanea.com/