The Cost of Opportunity Lost

Buying a Home -- To Wait or Not to Wait?

Irvine, USA 8/20/2008 10:04 PM GMT (TransWorldNews)

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Fred Solomon, president of Solomon Financial Mortgage and Realty analyzed if it makes more sense to wait for housing prices to drop some more or buy real estate now. "I cannot tell you how many times I get asked, "Is it a good time to buy?"

“Can you believe in my neighborhood the 20% decline in just one year," will hold back people from buying in a market where interest rates are still historically low. Yes, you paid $500,000 for your home in 2006 and today they are selling brand new ones for $400,000. And the perception is that everyone thinks that home prices are going to continue to drop some more, which is great for buyers, of course. Ask Donald Trump or Warren Buffet if they are thinking about buying or selling properties today.

Here, I analyze whether it made sense to wait or not, on a $500,000 purchase:

Cost of Ownership if Prices Are Higher and Rates Are Lower
$500,000    Jane’s Purchase Price
$100,000   Down Payment
$400,000    Mortgage loan
$2,462.87    6.25% 30 yr fixed Rate
$485            Property Taxes
$65              Homeowner’s Insurance
$3,012.87 – Total Monthly Payment

Now, let’s say you waited for property values to drop 10%.

By the way, what would cause that to occur? How about Perception vs. Facts? The “way of thinking” in the late 1990’s was “If you buy internet stocks, you will become a millionaire.” Then we had the dot com bust at the end of the 90’s. The perception today is that home prices are going to drop. Most likely true. Certainly, an increase in foreclosures in the neighborhood where you are buying; will cause home prices to drop, right?

How about sellers panicking because their loan is adjusting and they can’t afford the new payment and they don’t have a line of credit on their home? How about higher interest rates down the road because of inflationary concerns – the most recent data was 4.3% on the inflation news front (out of the Fed’s comfort zone of 3-4%). However, the Fed does think the economy will slow down this year. Let’s worry about the dollar and inflation later.

What will happen to property values if interest rates do go up? Let’s say rates go up 1.5% and prices drop 10% because of the higher rates. Do you realize that the cost of ownership will be higher buying at the less expensive price?

Cost of Ownership if Prices Are Lower and Rates Are Higher

$450,000     Tom’s Purchase price
$90,000      Down payment
$360,000    Mortgage Loan
$2,579.08    7.75% 30 yr fixed rate
$430            Property Taxes
$60        Homeowner’s Insurance
$3,069.08—Total Monthly Payment

As you can see from these illustrations, it would cost $56.21 more per month to buy Tom’s home vs. Jane’s home.

For more information subject of this release contact:
Fred Solomon
Solomon Financial Advisors
(800) 811-7709
To pre-qualify or get pre-approved for a home loan go to: freemoneyhour.com

info@sfmdirect.com
www.freemoneyhour.com/loancost.php

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