National Media Starts to Agree, It’s Time to Buy
March 3, 2008
Amidst all the doom and gloom scenarios, some members of the national media are beginning to suggest that it is in fact, time to buy. In a recent article in Time Magazine Dan Kadlec states, “anything you gain by a further drop in prices might be offset by rising financing costs.”
Moreover, “Consider a typical home that sells for $218,900. You put down 20% and get a 30-year fixed-rate mortgage at today’s rate of 5.5%. Monthly principal and interest come to $994.31. Let’s say that 12 months from now the same house goes for 10% less, or $197,010. But by then the recession is history and the Fed is jacking up rates to stem inflation. If mortgage costs rise a point, to 6.5%, your monthly payment would be $994.94 and you’d have saved nothing. Meanwhile, home prices might steady and sellers might become less willing to negotiate. And you have spent a year living someplace you’d rather not be.” – Time Magazine
A couple points for clarity:
1. Chicago did not see close to the price drops seen in many other major metropolitan areas. We saw gains of 2% down to decreases of 4% depending on the index you consult.
2. “The irony is that in the time Kadlec did his research and when the magazine came out, interest rates were already back over 6 percent, making his example all the more compelling.” – Realty Times
3. While Kadlec mentions the possibility of “living someplace you’d rather not be” for an extra year, his example does not touch on the inevitable loss of equity a buyer will experience by waiting an extra year to purchase. Equity build up is fundamental to building wealth through real estate purchases.
For the Time Magazine article click here:
http://www.time.com/time/magazine/article/0,9171,1713483,00.html
For the Realty Times commentary click here:
http://realtytimes.com/rtpages/20080229_realtyviewpoint.htm
Best,
JLC
