In today's market there is a lot of talk about whether home prices are stabilizing, getting better or are goign to get worse. While no one can ultimatley predict what the future holds in the housing market ; there are certain variables we can track. One is the affordability of a home.
A lot of people think it may be better to wait to buy a home. Prices still may drop lower. We have not seen the bottom is a common phrase we hear a lot today form consumers who are reading news headlines or watching TV. However; is it still wise to wait?
A common misconception is that prices of homes dictate the affordability of the home only. When in reality it is a combination of home prices and current average mortgage rates. We have not in history seen interest rates on 30 year mortgages as low as they have been now. Couple that with the price decrease in homes and more people can qualify for a home now than ever before. Of course, the third variable is credit which is individually controlled and not controlled by the market.
But, let's say that home prices in your area average $200,000. With current 30 year fixed mortgage rates at approximately 4.4% right now a majority of homebuyers could afford to buy this priced home. Now, let's say that prices drop 10% on this home (a good thing?) but interest rates go up 1%. You would lose approximately 10% to 15% of the buyers who could afford this home before. Why? Because even though the price went down; the itnerest rate went up. The price drop was not signifcant enough to offset the increase in the mortgage rate.
So, when you are looking or thinking of buying a home. You need to consider more than just how the home prices are doing right now. A fluctuation in interest rates can have a more dramtic impact on yoru purchasing power than the price of the home.
Dave diCecco
Realtor/Broker
www.davedicecco.com
No comments:
Post a Comment