Here’s why to Buy Now
An Expert says – it’s the Interest Rate
This story made a splash around the internet- it’s an interesting take on the timing of your purchase. I’ve been sitting on it for a while because I had some doubts. It is a fresh approach so I think it’s worth a look. According to Dan Kadlec of Time Magazine (Feb 25) you can buy today and not lose money even if the value of the house drops 10% in the next year. The secret is in the interest rate. Look at what happens with a home priced at $218,900 today with 20% down and a fixed 30 year loan at 5.5%; and compare to the same home whose value has dropped 10% after a year:
Price Down Payment Rate Payment $218,900 $43,780 5.5% $994.31 $197,010 $39,402 6% $994.94
The interest rate in this projection has risen as the recession fades and the Fed adjusts rates. You’ve waited a year in a home you don’t want, and you haven’t saved a dollar! Lots of Realtor websites jumped in and agreed with Time- BUY NOW is the thing to do. It’s simple math, easy for anyone to understand. Or is it? Read on…
Here’s a condo selling for around $200,000
Let’s look at some other $200k properties in the table below. Could you buy one today at the same total cost as it would be a year later?
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Does timing your purchase have to be a gamble?
…Or can we take control of our future?
That was February’s Time and the story has changed. When you look at the story at their web site today you will note a curious discrepancy: there is no table and it seems some facts were wrong. Intrepid Adam Marquis crunched the numbers and came up with this chart summarizing his conclusion:
Price Down Payment Rate Payment $218,900 $43,780 5.5% $994.31 $197,010 $43,780 6% $918.69
Well now, that’s very different! I didn’t do the math, but from the start I was uncomfortable about the assumptions in the original story. It looks bad as we consider the updated figures, but there is something of value here. It’s a fairly simple matter for us to crunch our own numbers; make our own assumptions about price and interest movement. We may find that this IS the time to buy in certain situations. That’s what Redfin is all about- giving everyone the tools to take control of their own homeownership plans.
[data from generally reliable sources, please comment on any errors!]
