Money Magazine says its time to Buy Now … not Later
In fact, it could be that now is the best time to buy … AND sell? You might find this confusing but it is actually quite logical. The cost of borrowing is going to go up as interest rates rise I don’t know of a single financial or real estate expert who doesn’t agree on this. So buyers will have to spend more for the same house or buy at a lower price. As the affordability index goes down, sellers will likely have a more challenging time selling. Potential home buyers must consider rising interest rates when thinking about the true cost of a home which is the price and the mortgage rate. The longer a buyer waits, the higher the mortgage payment will be if rates continue to increase (as is projected by Fannie Mae, Freddie Mac, the National Association of Realtors and the Mortgage Bankers Association).
Money Magazine, in its latest issue, agreed with this analysis as they also warned their readership of the same ramification if they waited to buy a home. Here is what was stated in their article…
“BE MINDFUL OF RATES. The average interest rate on a 30-year fixed loan is predicted to climb from the current 4.4% to 5.3% by the 2015 spring buying season, according to Freddie Mac. For a $250,000 loan, that means that a borrower who waits would pay $136 more per month and an additional $49,090 in interest over the life of the loan. Will you need a big loan? Better to act soon before rates tick up.”
And the monthly increase Money mentioned did not take into consideration that prices are also projected to increase over the next year. Here is what the additional cost would be if prices rise by the 4.5% projected by the latest Home Price Expectation Survey AND interest rates go to 5.3%. This projection is based on a $250,000 purchase which is very rare in the DC metro area, so the additional monthly costs of approximately $200/month would rise to $800/month on a $1 million purchase, or $1,600/month for a $2 million purchase.
However, the question is whether prices will increase as interest rates rise. It is quite feasible that home values will stall as the interest rate level rises. One thing is certain … today in the DC metro area, there is pent-up demand among buyers. Selling a home in this market will more than likely get a very positive result and the future is and will always be … uncertain.