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If You Are Waiting To Buy – Think Again!

By C.J. Coury

Most prognosticators agree that home prices have somewhat stabilized from the days of annual double-digit deflation – others predict continued downward movement in home prices. No matter which group you chose to believe there is one absolute certainty – interest rates have increased substantially and are likely to continue their upward trend as inflationary pressure continues.

The impact of rising interest rates on your monthly payment is even more impactful than a decrease in the purchase price of the home, even if they should continue to fall a bit more. Take a look at the following examples for a clear demonstration of why I caution you not to wait any longer to buy.

Example 1: Sale price of home   = $300,000
  Mortgage Loan   = $240,000 (after 20% down payment)
  P & I Payment at 4% = $1,145.80
  Sale price of home   = $270,000 (10% decrease from above)
  Mortgage Loan  = $216,000 (after 20% down payment)
  P & I Payment at 5% = $1,159.53

In Example 1, even though the price of the home went down by 10%, the mortgage payment went up by almost $14.00 per month due to a 1% increase in the interest rate. This 1% increase in interest rates has already taken place with further increases likely. The 10% reduction in purchase price from this point forward, in the opinion of the majority of pundits, is highly unlikely.

Now let’s look at what will happen if you continue to wait while prices fall another 5% while rates increase another 1.5% from today’s levels:

Example 2: Sale price of home  = $300,000
  Mortgage Loan  = $240,000 (after 20% down payment)
  P & I Payment at 5% = $1,288.37
  Sale price of home  = $285,000 (5% decrease from above)
  Mortgage Loan  = $228,000 (after 20% down payment)
  P & I Payment at 6.5% = $1,441.12

In Example 2, even though the price of the home went down by 5%, the mortgage payment went up by over $153 per month due to the 1.5% increase in the interest rate.

It isn’t possible for anyone to know for certain what the future will bring in the way of housing prices and interest rates. The above examples are merely intended to illustrate what could occur and to encourage you to be mindful of both of these factors when considering whether or not now is indeed the time to buy. So, if you are sitting back and waiting for home prices to drop just a bit more before buying you may want to think again.

C. J. Coury is a Private Mortgage Banker with Wells Fargo Home Mortgage. He has been a mortgage finance professional since 1983. C. J. may be reached at (941) 730-2444 or by email at cj.coury@wellsfargo.com.

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