Yeah, yeah…we’ve heard that several times over the past 3 years. “Housing hit bottom…buy now!”
Stay with me here as I lay out a case why housing has probably not hit bottom; but why you should buy now.
First, let’s look at what housing has done – it spiked throughout the first half or so of the 2000 decade, and has precipitously fallen since then. Take a look at this chart:
Other than a fall in values from the median during the Great Depression and through the second World War, we are pretty close to the median home value, when accounting for inflation. On average, I don’t think we are at the bottom, but we are close.
Does that matter? Not if you plan to stay in the home long term, and not if we are close to the bottom. It doesn’t matter that home prices could fall a little more, if you think that mortgage rates will rise from here.
Let’s put this in numbers as well. 30 year fixed rates are hovering around 4% currently. Unlike home prices that have fallen pretty much in line with historical averages, mortgage rates should be considerably higher, and would be, if not for government intervention. Let’s say, hypothetically, that rates jump from 4% to 7%. And, simultaneously, home prices fall another 5% from today’s average. Here is the difference:
So with these assumptions, if you bought now the home $200,000 home would cost you $10,000 more than if you waited. But if rates jumped 3 percentage points, and you stayed in the home for the next 10 years, then you would end up paying out $42,000 more in mortgage payments by waiting.
If you don’t agree with my assumptions here, you can manipulate the data using this mortgage calculator.
Are you ready to buy now? If you personally with your financial outlook are ready, then don’t let the market keep you from buying. In fact, quite the opposite. The market is primed for you.
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