March 3rd, 2008 7:45 AM

While today’s market plays to their advantage, buyers, who should be swooping in to make the most of reduced housing costs and favorable interest rates, are sitting by, waiting.

 

When the market turns, today’s bargains will be yesterday’s missed opportunities.

 

While it is conceivable that home prices may drop further, it is likely that these decreased prices will be accompanied by increased financing costs due to rate cuts by the Fed. This means that any money saved on paying less for a house in a few months time will be offset by buyers having to pay off their mortgage at a higher interest rate making “playing the waiting game” a waste of time (and very little fun).

 

This rate increase isn’t just speculation. Just a couple of weeks ago, in early February, the fixed mortgage rate jumped a full half-percent, making it the fastest rate increase in 20 years.

 

The table below demonstrates how even as home prices may drop, monthly mortgage payments basically stay the same; due to increased interest rates:

 

Scenario 1:
Prices decrease by 5% and interest rates increase by 0.5%

Scenario 2:
Prices decrease by 10% and interest rates increase by 1.0%

Today	Scenario 1	Scenario 2
Home Price $218, 900	Home Price: -5% $207,955	Home Price: -10% $197,010
Interest Rates 6.04%	Interest Rates: +0.5% 6.54%	Interest Rates: +1.0% 7.04%
Monthly Payment $1,054	Monthly Payment $1,056	Monthly Payment $1,053

Table: Kadlec, Dan. "Ignore the Headlines!"  Time 25 February 2008

 

 

 

 

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