As I mentioned in yesterday’s posting, there is a broader agreement in the inevitability of mortgage rate increases in the coming year. If this indeed comes to pass, it will have a significant impact on consumer buying power. The chart below is an excellent example of how it plays out
Example: If you purchased a house today that is valued at $200,000 with an interest rate if 3.5%, your payments would be $898.09. But you decided to wait until some point in the future, confident in the fact that prices had not reached bottom. At that point, however, interest rates might have risen to 4.0%. The actual home price may have gone down as much as 5%, but it might just as easily have risen 5%. The surprising fact is that in both cases the monthly payment is higher, $9/month in the case of the price drop, and a whopping $104/month in the case of a price increase.
Lesson: don’t let the moving target of home prices prevent you from buying. Consider everything. If anything should deter you, it is the shrinking inventory, i.e. there just aren’t enough houses to choose from. Perhaps. But you might just find the perfect house right now. So if you do, be prepared to act.