I happened to flip by some real estate program on the radio this morning - "House Calls" on KFWB, I think - and the "hosts" - who I believe are just mortgage brokers showcasing properties - were talking about the current interest rate environment. Their basic point was that rates are so low now (4.5% on a sub-$417k loan and 4.75% on a sub-$625k loan) that you "can't afford to wait".There also seems to be a steady inflation drumbeat out there that's gaining volume.
So, a question for the readers - will continued housing price drops make up for any near-term rate increases in terms of affordability? Will inflation really be a factor?
Anecdotally, for a place that costs $750k today, with 20% down and a 30 year fixed rate of 4.75%, you're looking at a monthly nut (including taxes) of approx $3900. If prices fall another 10% from here, the rate could move up to 6% and you'd be in roughly the same place economically, factoring the lower down payment and the interest you'd earn (albeit small) on the difference. And, of course, you'd have a lower basis. Granted, 6% is still a very low historical rate ...
Your friendly blogger's take? Getting locked in at these rates might make sense if you're looking for a rental property and can spend the time digging through bank-owned listings to find a real "gem" that's a screaming bargain they're looking to dump, or if you find your "dream place" that you're planning on being in for over 10 years. For the rest of us, I'm betting that any rate increases in the near term (next 12-18 months) will be offset by corresponding price decreases - and I'd rather have the lower basis.
6 comments:
You betcha! That lower basis is what we want! Especially the witch's house at a low basis in the best possible neighborhood.
slappin da bass
I think the super low rates make buying now reasonable for anyone planning to stay in their home for at least 6 years.
Interest rates go up and down but you are stuck with the purchase price forever.
Oh for cryin' out loud -- I thought we'd gotten over the "Mr. & Mrs. HowMuchAMonth" mentality. As I like to say, you can always refinance your mortgage rate, but you can never renegotiate the purchase price, once escrow has closed.
That said, I do know a few people who are taking advantage of these rates...to refinance homes they already own.
I'm pretty impressed by the financial acumen of blogger and posters. Most idiots fall for the "low interest rates equal affordability" nonsense. This group didn't skip a beat.
Post a Comment