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The Question is should I wait for Prices to drop? What if rates go up?

Posted on Jun 6, 2010 by in Active Rain | 0 comments

The question is should I wait for Prices to drop? What if rates go up? As a Southern California Realtor I monitor the Real Estate Market very closely as well as the economic indicators. I feel like I should  just scream, when I hear Respected  Economists,  members of the Federal Reserve Board and Politicians speak and creating misinformation to potential buyers and creating potential future economic problems for us, as well as the rest of the world.

Many buyers are listening and hearing that there is another wave of price drops in the works due to more Loans Re-setting.  So is it in their best interest to wait till prices drop some more? Then I am listening to one of the members of the Federal Reserve Board giving a speech that the government should raise the Interest Rate since the economy is so much better than last year. I could go on and on, anyway, let me not get off the subject about the wisdom or the there lack of this Federal Reserve Board Member’s.

Let’s say the Fed decides to raise the interest rate. Let me illustrate the potential shift in the housing and mortgage markets. The cause and effect is very clear (see my illustration):

Today you buy a $1 million dollar home:

Sales Price                                                                             $1,000,000.00

Down Payment                                                                     $   270,250.00

Loan Amount                                                                         $   729,750.00

Monthly Payment on a 30 year fixed at 5.125%              $       3,973.00

Now let us say if prices drop 10% in home values and today’s $1 million dollar home sells for $900,000.00, this seems very reasonable.  The buyer would think well of course I should wait. Now let me add in to this scenario that the interest rate increased only by a modest 1% per cent. Let’s look at the numbers.

 

Sales Price                                                                            $900,000.00

Down Payment                                                                    $200,000.00

Loan Amount                                                                        $700,000.00

Monthly Payment on a 30 year fixed at 6.125%             $    4,253.00

This increase in monthly payment will have a huge effect of the overall purchase power of the buyers and ultimately it will decrease the number of sales transactions. Hence the question should you wait or buy now, the answer is very clear to me. Hope you all can see it with my illustration.

If you are a consumer  who is considering buying  or selling  a home, investment real estate, vacation homes, or beach properties in Southern California, Los Angeles, Century City, Westwood, West Hollywood, Beverly Hills, Culver City, Marina Del Rey, Venice or Malibu. Feel Free to give me a call at 310.486.1002 (USA) or email me at homes@endrebarath.com  or visit one of my websites at http://www.endrebarath.com  Your Pet Friendly Realtor. I contribute a portion of My commission to Local Animal Rescue Organizations.  

 

 

 

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