Waiting for Home Prices to Fall?

Yes, the whirlwind of the real estate market has kept many people on their toes wondering what will happen next.  There are a lot of buyers that are waiting - and watching - in hopes that they will catch a good home at the lowest price it will ever be at.

Unfortunately, waiting for the rock bottom price of a home is like trying to plan a space shuttle launch - a lot of factors go into it.  If you are a buyer, you naturally want a guarantee that you are getting the best price possible.  Waiting, however, is not the best decision.  KCM Blog, a popular real estate blog, recently pointed out that there is a major difference between the "price" of a home and the "cost" of a home when it finally comes down to mortgages.

Allow me to show you their example.

The National Association of Realtors reported that home sales rose 15.4% in the 4th quarter of 2010, and also showed that home prices remained stable during the year.  Most buyers would be happy that home prices have not increased.

HOWEVER...

Interest rates during the last 90 days have risen from 4.17% to 5.05%.  This might not sound like a lot, but KCM illustrates it very simply.  "The price is the same, it just costs more."

Take a home that costs $170,000 over a 30-year fixed rate mortgage:
...@ 4.17% interest, monthly payments equal $828.36

...@ 5.05% interest, monthly payements equal $917.80

By sitting on the sidelines for the last 90 days, the purchaser loses:
- $89.44 per month
- $1,073.28 per year
- $32,198.40 over the 30-year life of a mortgage.

At the end of the day, even if prices fall another 10% this year, the cost of the home will increase if interest rates rise more than 1%.  Buyers should stop worrying so much about the price of a home and should be more concerned with the cost of the home that is dictated strictly by the interest rate.