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There is a lot of talk right now about how now is a good time to buy a home. If you hurry, you might be able to squeeze in a home buyer tax credit. You have to have a home under contract by April 30, though. And you have to be or first time home buyer, or you have lived in your home for five of the last eight years to qualify. Since I don’t fit either requirement, I’m in no hurry to rush into getting something that I might not really want. But my husband and I are looking — tentatively — for a new home. We’ve been in this one for three years, and with my husband finishing his Ph.D., we might look for an “upgrade” if he gets a job in this area.
But waiting might not be the thing to do. There is speculation that after the home buyer tax credit expires prices could drop again. Indeed, there are some predictions that, in some markets at least, home prices haven’t bottomed out yet. So, maybe it’s a good thing that we plan to be patient, waiting until we find just what we want at the price we want. However, our waiting may hit us in another way: rising interest rates.
Mortgage Rates Expected to Rise
Even though home prices might fall a bit further in some markets, mortgage interest rates are expected to rise in general throughout the country. So, while continued joblessness and distressed sales may keep prices low in many markets, the fact that the stock market is recovering and the economy is picking up, may result in higher mortgages rates. With stocks becoming more alluring, Treasury yields will have to rise to attract more investors, and mortgage rates are connected to 10-year Treasuries.
With mortgage rates rising, it could undo any advantage that comes with buying a home at a lower price. Kiplinger offers this interesting example of how rising mortgage rates can offset falling home prices:
If you borrow $300,000 now with a 5% rate, you will pay $1,610 per month. If wait, and borrow $282,000 later, but have to pay 5.7% interest, your monthly mortgage payment will be $1,637.
It’s only a difference of $27, but it can add up. Over the course of a year, that’s a $324 difference. Over 15 years, the difference is $4,860. Carry on for 30 years, and the difference you will be paying overall is $9,720. That small difference looks more important, especially when you think that you might have been investing that money and earning a return all that time, instead of paying higher interest charges.
Now Might Be the Time to Buy a Home
If you believe the experts, that interest rate are bound to rise by the end of the year, then now could be the time to buy a home, especially if you have been planning on it and can afford it. Of course, there are other issues to consider. You might have to wait to buy a home in order to accomplish the following:
- Higher credit score
- Bigger down payment
- Documentation for proof of income
Lending standards have increased, and you may need to meet them in order to qualify for a home loan. Additionally, if you already have a house, you will have to sell it. This means that you run the risk of trying to sell for less than you would like. Many banks won’t let you do a short sale if you are not in a difficult financial position. So, unless you have adequate equity, a down payment of anywhere between 5% and 20%, and a good credit score, you might not be able to buy a home — even you want to.
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What about if prices drop again? What would happen if prices drop again…meaning a 250K home with 5% vs. 6% with 240K home (just making up an example)….
Just have to think about whether prices are going further down.
Visiting from yakezie – You should install comment subscribe plugin!
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Rob
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