Recently I attended a seminar given by Dr. Ted Jones, Senior Vice President-Chief Economist for Stewart Title Guaranty Company, a national company that provides title insurance and escrow services in the real estate industry. He provided a lot of common sense information about the current state of our economy. But the one idea that really hit home with me was a scenario he presented about buyers who are sitting on the fence waiting for prices to go down further. The scenario goes like this:

Say you’re in the market for a home but you think you might wait until prices drop another 10%. You’re approved today for a $100,000 loan at 5%. If you were to proceed and find that $100K home, make an accepted offer and close, your payment (principal & interest) would be $536.82/month.

But wait… you could wait several more months until prices drop another 10% (like it will in some markets) and get that same type of home for $90,000. Your payment would then only be $483.14, saving you $53.68 every month. Great idea, right?

But wait…what if interest rates increase just 1% in that same period of time that it takes the price of the home to reduce 10%? Now your payment on that $90,000. home will be $539.60/month or $2.78 more than if you’d purchased several months ago. Add to that the lost tax savings and comfort of being settled in your own home and what have you gained?

But wait…what if you decide to wait until prices reduce and then buy a nicer home by spending the full $100K that you had budgeted for. Same interest rate of 6% and your payment is suddenly $599.55/month. Problem is that if you qualified for $100K at 5% you probably won’t qualify at 6%.

Dr. Jones’ take: “Delaying a home purchase waiting for home values to decline could price you out of the market.” Timing the real estate market is as difficult as timing the stock market. When you realize that the market has hit bottom, you’ve already missed out.

So if you’ve been thinking about purchasing a home or investment properties – there’s no better time with interest rates at historical lows and the enormous inventory of available homes. And if you’re a first time home buyer, the added bonus of the tax credit offered by the federal government.

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Tags: Timing the Real Estate Market

Posted In Blogroll, Real Estate Info

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