Buy now or wait?

By Justin Hunter

There are many questions floating around the minds of anyone engaged in the real estate market but the most prevalent question in the minds of the prospective home buyer is whether they should buy now or wait.

A home buyer may want to buy now because mortgage rates are relatively low and they usually rise as the housing market and weather heats up in the summer. But on the other hand, a buyer may want to wait because home prices could continue to decline. So in deciding to buy now or wait, the real question a home buyer should first ask is whether they think they can save more from a lower interest rate or from a lower house price.
The article, “Home buying: Buy now? Or wait for a price drop?” written by Asa Fitch and posted February 21, 2007 on CNNMoney.com attempts to provide a little directive for the prospective home buyer trying to decide if it is better to buy now or to wait.

No one can 100 percent accurately predict the future of the mortgage rate or home prices so it is first important to determine which scenario (mortgage rate rise or house price decline) would lead you to buy now or later.

“For example, the monthly payment on a $300,000, 30-year fixed-rate mortgage at today's rates is $1,847. Rates would have to rise to 8.1 percent - nearly two full percentage points - before a $250,000 loan would cost that much.”
Now you need to determine how much or even if prices will decline in your area. Again, there is no way you can accurately predict this although there will be no shortage of economists who think they can, so instead it is best to focus on past statistics and possible patterns.

“Over the long haul, home prices in the U.S. have appreciated at about 6 percent a year, and even in the most volatile markets, one-year declines of more than 10 percent are very rare.”

You also need to consider that if you wait to buy, you will have to pay rent in the meantime, but purchasing property in a buyer’s market, like the one most cities are currently in, will provide the buyer with more leverage over the seller, meaning the buyer could negotiate better deals.  

“If prices are stagnating or dropping in your area, you can offer about 10 percent below the asking price to start off the bidding, says Miller, and ask the seller to pay for closing costs, which can run to 2 percent or 3 percent of the value of the mortgage.”
Besides obtaining leverage for a lower price and costs, you may also be able to convince the seller to replace the roof or add better appliances.
 
There is a lot of hearsay going around but what would be the overall best decision for a prospective buyer in an average buyer’s market.

“If you can afford to make the purchase now and you're planning to be in the house for at least five years, ‘I wouldn't be worried about buying a house today,’ says Reston, Va. financial planner Patricia Houlihan.”

But be careful because most people think they will stay in their home for many years but the statistical average is currently about five years. In the case you do not stay in the new property for at least five years, you would be better off buying now and saving more on the mortgage interest rate.

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