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This has been the big question in San Diego County for the last 4 years. In retrospect, the answer is obvious…buy now! But what about buying right now? The same answer still works. Buy now, unless you are an all cash or mostly cash buyer. If you are in a strong cash position, the answer is less clear. If you are financing the majority of the property price, you will pay more per month if you wait for prices to drop. Seems illogical but it is not. What will cause the prices to go down? Interest Rates going up! Most experts expect the interest rates to rise gradually over the next few years. The consensus is about a 1% increase this year. Currently (Nov, 2005), the rate for a 30 year fixed rate loan with 20% down is about 6%. That 1% increase will cause about a 10% loss in buying power. There is usually a significant difference in the quality of the home you can buy, especially in the low to mid price ranges. $500K vs $450K, $700K vs $630K Home prices are expected to rise slightly (5% to 10% per year) until the interest rates go over 7%. Then home prices are expected to start dropping when the interest rate reaches 7.5% to 8%. Lets look at the numbers. Below are 3 possible scenarios. These charts only show the payments of Principle, Interest & Taxes. If we used an example of a $500,000 home with 100% financing, here is the progression. This shows where the Price and the Interest rate need to be, in order to keep the payments about the same.
Note that, if we get a 2.25% rise in interest rates to 8%, it will take a 20% drop in price to about break even. Could interest rates reach 7% or 8% this 2006? Possibly. What makes the decision to buy now even more clear, is what happens in the next two charts as prices and interest rates increase: If prices stay the same and interest rates rise:
If prices rise as predicted and interest rates stay the same:
Are you ready to buy now or soon? Please contact me so we can schedule a preparatory meeting to determine your needs and how I can help make it happen for you. Even if you are a year away from buying, a meeting with me can be very beneficial in getting you into your home with the best possible price and terms. There is no cost or obligation for our meeting. If you know anyone who is thinking of buying or selling and would like the type of service and knowledge I provide, please call me with their name and number.
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