Wednesday, June 25, 2008

Rising Interest Rates Affect Buyers More Than Declining Prices

Congratulations on being an astute Buyer … so far. Unless you are a cash Buyer, making one easy payment at the close of escrow, you might want to seriously consider buying real soon. We make this statement based on the fact that interest rates have been creeping upwards lately. They still aren’t too bad, but as they rise you inevitably lose buying power. What if they go to 8 or 9%? In our careers we have seen 18% with 9 points on a VA. It is a ticklish affair for the Feds these days – don’t squash the Housing Market and keep a lid on inflation. As the Market recovers interest rates could well bubble upwards.

Rates have recently gone up three quarters of a percent, from around 5.5% to 6.25%. Considering a $200,000 loan, the payment difference is $95.86 monthly. That equates to $15,569 less buying power if you keep your payment at what it would have been at the lower rate. Some of you might have to keep it there – it’s all you qualify for. Others might just want to do so from a budgeting standpoint. Either way, today you are buying less home, or paying more for the home you want, than you would have just a month or so ago.

Another way to look at it – your buying power has dropped 7.784% in the above illustration. Over the past year the market has certainly dropped more than that in our Valley, but not that much in the past month. If you wait, and interest rates continue to rise, you might find your “timing-watch” wait for naught. We are seeing some traction in pricing lately with the increase in buying activity. Prices aren’t rebounding yet, but the free fall is now more of a guided glide. What is uncertain is the future of interest rates. Interest rates are now the bigger issue and a real risk for Buyers.

Real estate is a long term investment. If you buy now and the value of your home drops another 5%, chances are very good that it will go higher during the course of your ownership. On the other hand, your fixed interest rate will go on for 30 years. Sure, you can refinance if rates go down, but at significant cost. There is no cost to you as the real estate value fluctuates, but there will be a cost if you have to pay to lower your higher interest rate.

Our Advice: We continue to believe that timing the market is like catching a falling knife. You might get the good end … or you might not. If you are looking for a home to live in and enjoy the benefits of home ownership this is a great time to buy. A good agent can help you get a good buy, and a good loan officer will help you get the best loan that is right for you. Historical trends show real estate to be a great investment. History also shows us how volatile interest rates can be. Take steps to secure your destiny - pick a course of action and don’t look back. More important than saving a buck is buying the right home and feeling good about it every day you live in it. Your agent can help you do that so you can quit worrying about what to do.

It isn’t all about money. When it comes to living in your own home there is a substantial emotional return on your investment. Only you know what that will mean to you, and you should act accordingly.
Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, , 775-781-5472.

1 comment:

Anonymous said...

Interest rates held steady today, no consecutive cut by the Feds. Looks like increases are going to be right around the corner