Still sitting on the fence waiting for home prices to hit ‘The Bottom’?
It’s a given that cautious buyers want to make sure that they don’t overpay for their new home. Unfortunately, it’s not all about the price… Buyers shouldn’t be so concerned about home prices as they should be about the cost.
The cost of a house is made up of the price AND THE INTEREST RATE that buyers will pay.
The National Association of Realtors (NAR) released their 4th quarter housing research report. In the release, they reported that home sales rose 15.4% in the 4th quarter over the 3rd quarter. They also showed that prices remained stable during the year:
The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009.
A buyer who delayed a purchase might find solace in the fact that prices have not increased. However, another news piece paints a different picture.
The Primary Mortgage Market Survey was released by Freddie Mac on February 10th showing that the 30 year fixed rate mortgage was at 5.05%. Frank Nothaft, vice president and chief economist of Freddie Mac said:
“Long-term bond yields jumped on positive economic data reports, which placed upward pressure on mortgage rates this week… As a result, interest rates on a 30-year fixed-rate mortgage rose to the highest level since the last week in April 2010.”
So from a national perspective home prices seem to be stablizing, but interest rates have risen dramatically in the last 90 days. What does that mean to a buyer looking to purchase a home this year?
The price is roughly the same. It just costs more.
By sitting on the sidelines for the last 90 days a purchaser lost:
- $89.44 a month
- $1,073.28 a year
- $32,198.40 over the thirty year life of the mortgage
If you buy a $340,000 home, double all these numbers.
Even if prices fall another 10% this year, the cost of a home will increase if interest rates go up more than 1%. Buyers should not worry where prices are going. They should be concerned where costs will be later in the year.
The unfortunate truth is that waiting for ‘The Bottom’ may not be a good financial decision… sometimes the big picture can be overlooked by obsessing on the details. As the economy improves, interest rates will rise.