Tuesday, December 12, 2006

Why should you buy a home if the price may go down?

I meet a lot of people who are delaying a first time home purchase because they think the prices may come down somewhat in the near future. That's true, prices may fall in the near term but here's why these folks should buy now.

First of all mortgage rates are near historical lows. Inflation fears in the mortgage market are low and that keeps rates down. The 30-year fixed rate has fallen from 6.77% a few months ago to 6.11% today. If inflation fears or other risk factors in lending worsen the rates will go up.

So say you buy a home today for $200,000 and one year from now you could buy the same home for $190,000 because the price goes down. If you buy the home today your principal and interest payment at 6.11% would be $1,213 per month. This excludes insurance and taxes but those are influenced by other factors.

If you wait for a year and buy the same home for $190,000 and interest rates are three quarters of a percent higher your payment would be $1,311. You'll be paying an extra $125 per month in interest and your payment is $98 higher. If you had bought a year earlier you also would have reduced the principal amount by $2,123 already. You also (depending on your situation) have probably reduced your income taxes with credit for mortgage interest and property taxes paid by about $1,000 for that year as well. Plus you own a home of your own instead of renting.

The alternative: If you had kept renting your rent probably went up by $30-$40 per month for your one bedroom apartment over the year you waited. And what if mortgage rates AND prices go up? Now you really got hosed. Plus if you keep renting your rent is going to go up with inflation each and every year and it will probably outpace your paycheck. How many times can you downsize before you live in a closet?

One of the biggest regrets in my life is listening to the advice that dad gave me about buying a home. He told me to save up a down payment to get a better interest rate. I didn't quesiton his advice and I got screwed. Prices of homes went up 35% while I was saving. I kick myself every day for not looking for more advice.

There are two groups of people in this country. One group is making mortgage payments and buying real estate for themselves. The second group is paying rent and buying real estate for someone else, their landlord. Which group would you rather be in?

And if you're willing to live in an apartment you own and you make about $35,000-40,000 per year here's something really cool. I can show you how you could buy a 4-unit apartment building, live in one of the units for about the same as your current rent and only pay taxes on $10,000 of your income for the next five years.

2 Comments:

Blogger C-Train said...

alright good points. how do i get one of these grants the govt is giving away to pepole i may as well get some of my damn tax money back??

7:19 PM  
Blogger slave_to_reason said...

"One of the biggest regrets in my life is listening to the advice that dad gave me about buying a home. He told me to save up a down payment to get a better interest rate. I didn't quesiton his advice and I got screwed. Prices of homes went up 35% while I was saving. I kick myself every day for not looking for more advice." Rex
Did your savings under-perform the 35% increase in the housing market? Also if you lived at home at the time and didn't have rent you could take the time to make sure you get what your looking for. While I agree with owning in many ways, what about the costs of having to move for a job, or being fired from it? A house is like an anchor, just make sure that is where you intend to be in ten years or the hassle of unloading may not be worth it. Also, since civil liberties are gone, not even a home offers safety from seizure. Cops are pulling gold out of peoples mouths saying it was paid for with drug money without a trial. Some cops are funded ENTIRELY on confiscation before trial. The racket always wins. Let the collapse begin! Brandon

3:00 PM  

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