Have you been waiting for home prices to drop to purchase your next home? BIG mistake! It turns out that all those who “overpaid” for their homes in the past few years are the ones who got it right.
This is because the record low interest rates of the past several years are the main reason for the record high home prices. Sure, there were other factors, but it wasn’t until interest rates doubled last year in just a few months that demand for homes dropped, the bidding wars screeched to a halt, and home prices began to level out and even drop in some parts of the country.
Here’s the dilemma for current homebuyers: If home prices do drop, it is because interest rates have gone up even further, so even though the price is less, the monthly payment will be more, and you could pay tens of thousands more in interest over the life of the loan. Take a look at the chart below for a comparison of monthly payments and total loan costs for a $275k home at 7 percent, $300k at 6 percent, and $325k with a 5 percent rate. Can you believe the $325k loan cost LESS than the $275k loan?
So why not just wait until interest drop? That is a smart strategy, if interest rates were expected to decrease anytime soon. The trouble is that, until the government gets inflation under control, there is a better chance rates will get worse before they get better. That’s good news if you want prices to drop but bad news if you want to actually pay less for your next home.
Please leave your questions or comments below, or feel free to Contact Me Today with any questions you have about buying or selling a home in the current market.