Wednesday, March 12, 2008

Does it matter if prices drop?

Somebody sent me an article from Time Magazine online which posts a very interesting thought exercise regarding waiting for the market to bottom out before buying. Consider this:

Today. You're looking at a home priced at $300,000. You'll put 20% down, which means you'll finance $240,000 on a 30-yr, fixed rate mortgage at 5.75%. Your monthly mortgage payment will be $1,400.58.

Next Year. Let's assume that the market falls another 10%, so you can now buy that home for $270,000. 20% down gives you a smaller loan amount of $216,000. However, let's assume that you're buying because the market is beginning to pick up, and you know it's time to move quickly. This increase in market activity might very well drive interest rates up a little bit, so let's assume you get a 30-yr, fixed rate mortgage at 6.75%. Your monthly mortgage payment will be $1,400.97.

If it's going to be exactly the same, why wait? (I told you it was an interesting thought exercise!)

Your scratching his head Realtor,

Chris Butterworth

[tags] lending, market activity [/tags]