I was wondering when….

I was wondering when we were going to start to hear it.  The tax credit for buying a home delayed it by months, I think.  And we get so used to one way of thinking that it takes awhile to think differently. 

But lately, buyers are asking the question…shouldn’t I wait to buy?  Prices are falling and if I just wait, I will get a better deal.  Maybe next year!

There is nothing wrong with that line of thinking in general, given the state of the housing market right now.  But it ignores one important factor–interest rates.    Interest rates are at record lows..lower than they have been since records started being kept in 1971, and you would probably have to go back 60 years to find them this low.

So I got to wondering… How much more could prices fall?  5%?  10%?  And how should interest rates affect a decision to purchase?

The brightest spot for Dayton when compared to other areas is that our home  values have done much, much better than most.  The 2nd Quarter Brookings Institution Metro Markets study shows that despite the Dayton area being 91st out of 100 areas in employment vs our peak, our house price index was 37th.   Why?  This is simply because we did not appreciate crazily like many markets did in the mid 90’s.  When you read about places like Phoenix losing massive value, you have to remember that they are in part just giving back some of the unreasonable appreciation they enjoyed in prior years.  So, how much more can our prices drop?  Time will tell, but it does not seem prudent to expect they can go much lower..

But let’s assume that next year, prices fall by 10%,  but interest rates rise by 1%..to the mid 5’s.  Incredibly, a buyer’s monthly mortgage payment remains about the same as it would had they bought this year.  And the extra interest that they would pay over the life of the loan would more than offset the extra money they paid for the house.  Should this massive government spending cause inflation to kick in and interest rates rise more than that, buyers will rue the decision to not buy now.

Moral of the story?    You can’t time the market.  Buying now may be a wise choice for you and there is not much downside risk to not doing so.  Buy a good home at a fair value in a good area–that will protect you against any downside risk.  And always remember–you are not buying the market.  You’re buying one property and can judge whether or not you are getting a good buy.