If You Don't Buy a House Now, You're Stupid or Broke

Have you read this article yet? It was featured in Business Week. 

My first thought, wow! That’s blunt and kind of rude, a very harsh statement. But the writer, Mark Roth, uses this  head turning title to get your attention to make excellent points for those who are on the fence.  Namely that interest rates are at an all time low, in fact, the lowest in 40 years. He noted that in the late 70s, rates hit a high of 18%!

Can you ever imagine buying a house at 18%?  I  can't fathom the thought however not all too long ago in the grand scheme of life my parents did it, as probably yours depending on your age, as of this writing I’m 37.

Most of my friends and people buying homes in this generation either bought a home using an FHA loan in the 6%-9% range depending on how good or bad their credit was. Imagine having excellent credit and only being able to fetch a best rate of 17-18%, that’s just nuts, but possible to happen again in the not too distant future. 

In the 80s rates dropped from 12% to 9%, many people were thrilled, while most peoples reaction today today would be more like WHAT!!!! Well if you were previously at 17% or 18% you’d be dancing in the streets at the opportunity to refinance at those low by comparison rates. We’ve had it pretty good for so long now that most people can’t imagine rates so high these days.  

Generation X'ers probably would never dream of purchasing a home above 7% given all we’ve ever known are super low rates between 5% – 6%. Mr. Roth points out the history of previous interest rates as well as their impact on purchasing power. I happen to agree with his prediction that as the economy becomes more stable, interest rates WILL rise to hedge inflation as it wildly spins out of control thanks in part, a big part due to out of control government borrowing and spending. Heck even our country’s credit rating is in danger of losing its triple AAA credit rating.  I’ll make the prediction that by this time next year, rates will have risen at least 1%-2% higher than today.

Now let’s keep in mind if rates go up as expected, refinancing at a lower rate should not be counted on given the history and how long it may take in years for rates to even begin to fall without further government intervention.

These numbers are just examples but lets just say the average sale is $250,000. Assuming a 5% down payment at 5% interest on a 30 year fixed, your monthly principal and interest payment would be $1275.  If rates rise to 7%, your payment increases to $1580/month. 

Some buyers may be on the fence because they fear prices may drop further. Consider this. If there is a 10% decrease in price and the $250,000 falls to $225,000 in one year, but you wait to purchase and the interest rate rises to 7%, your payment will be $1422.  You spend more money per month plus at the higher interest rate, you pay more interest over the life of the loan.  Real estate appreciation is always a cycle and as the economy stabilizes, values will level out. 

Data being analyzing by many of the trend trackers are having the experts already saying this is happening in many markets and that this will occur by 2014 in many states. Making a home purchase is still a decision that should be weighed carefully, being a home owner is not for everyone. Some people with poor credit and personal financial habits or others with other reasons should probably remain renters. One important consideration will depend on how long you plan to stay in the home.  

Mark Roth summed up the article, "What I'm trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime." Depending on where you live I’d also have to add that you should also take into consideration funds from additional sources such as local government down payment and closing cost grants as well as the federal home buyer tax credit currently being offered while it lasts and not wait until last minute this time. The government will not be extending it again, this time they will actually have a phase out plan giving people plenty of opportunity to take advantage without just yanking the offer away.

Marivic GMAC Real Estate specializes in helping families make good decisions. We do NOT think you are stupid or broke if you don't buy a house right now.  But if you are considering purchasing a home and would like a FREE consultation, we'd love to sit down with you and help you weigh your options and direct you to a qualified, caring mortgage professional that will help you with the numbers.

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