I'm Not Calling A Market Bottom But.....

After seeing the median home price in Bend climb by about 50% in 2 years (2004 to 2006), I'll be among the last you'll hear claim that we've hit bottom as far as prices are concerned.

But what about interest rates?

The average rate on a 30 year fixed rate loan is now about 6%. The lowest rate we've seen on these loans in the last 40+ years is about 5.25% The highest rate since 1970 was close to 18.5%, in 1981. http://www.freddiemac.com/pmms/pmms30.htm

With interest rates currently near historical lows (not to mention the accelerating rate of inflation), it is highly unlikely that we'll see interest rates go significantly lower any time soon. It's a better bet that rates will increase this year.

Purchasing power versus purchase price

Which brings me to the main point of this blog entry: While most people are concerned about the price they pay when buying a home, you may want to pay more attention to interest rates these days.

Let's say you could afford to buy a house you really like for $350,000 today. Putting 5% down ($17,500) and paying 6% on a loan for the balance would equal a payment of about $2000 a month.

But maybe you're hesitant because you think prices will come down even more. Let's assume you're right and prices do fall further, say 10% this year (a dramatic decrease by almost every account). If that were to happen, a year from now you could buy a house comparable to the one you like today at $350,000 for just $315,000.

Now let's also suppose that mortgage rates start returning closer to their historical average (about 8.5%) and a year from now the rate on a 30 year fixed is 7.25% (certainly a possibility, especially considering that rates were at about 6.7% less than 8 months ago and inflationary pressures are increasing).

Under this scenario, even though you pay a lower price, your payment would go up $50 a month simply because interest rates ticked up a bit closer to their historical average!

What to do

If you've even remotely considered buying a home in the next couple of years but are waiting for prices to fall further, talk to your bank today to find out the loan amount you qualify for and what the corresponding payment would be. This is a fast and easy process and costs you nothing. You can then start looking at houses and be in a great position to buy the home that's just right for you.

Feel free to call me to discuss your situation in more detail or to begin your search for a new home!