New Jersey Real Estate Blog

Alright, so you have received the results of your home inspection—now what? With all the excitement of the house purchase and the new move, many homeowners make the mistake of putting the results of their home inspection aside, thinking they will make necessary repairs later. “Your home inspection results are a great push-off point for making necessary repairs,” says Patricia Bell, President of Gloria Nilson Realtors, Real Living. “Making the repairs sooner rather than later can pay off in the end.”

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The Price of Waiting for Prices to Fall

Many home purchasers have been sitting on the sidelines waiting for home prices to hit bottom. They want to guarantee that they are purchasing at the best possible price.  I don’t know if prices still have some room to fall; however, waiting is not a good financial decision any longer. The buyer should not be concerned about housing prices. They should be concerned about cost.

Cost includes the price of the home as well as the cost of the mortgage over the life of the loan to buy it.  And interest rates are currently at 14 year lows.  The Mortgage Bankers Association of America just revised their forecasts for the rest of the year and they are estimating that sale prices for homes will stabilize out by the end of the year in most markets, while interest rates will be up approximately 1% over today.  So what does this mean to a buyer?

It means the price is the same or slightly lower, but the COST IS HIGHER!  For every 1% interest rates rise, a buyer’s purchasing power DECREASES by approximately 10%.  Here’s what you can buy for a $1520/month principal and interest payment with 20% down at different interest rates:

Interest Rate             4.5%                5.5%                6.5% 

Sale Price                  $375,000         $334,650         $300,650

Mo. Pymt                  $1,520             $1,520             $1,520

So you’re getting less house for the same cost as interest rates rise. 

But you still think prices will fall a while longer and that will more than make up for any bumps in interest rates?  Let’s assume rates rise 1% as predicted and house prices fall another 5% in the next 6 months on a house with a buyer putting down 20%:

DATE              PRICE                  LOAN AMOUNT          INTEREST RATE           MONTHLY PAYMENT

TODAY          $375,000                     $300,000                     4.5%                            $1,520

4^TH Q            $356,250                     $285,000                     5.5%                            $1,618

The monthly payment will have increased by $98/month or over $35,000 over the life of the loan.  The sale price only dropped by $18,750.  The house COSTS over $16,000 less now than it will in 6 months after the price has dropped!

Buyers should not be worried about where prices will be later this year…they should be worried about where costs will be.