Purchase price is important, but so is monthly cash flow. Because unless you’re shelling out CASH for the entire purchase, it really boils down to how much of a payment you can make per month which in turn determines the purchase price you can afford.

And again – I do thank y’all for at least not dissing my hair.

I’m not looking to be a rich realtor, which means I don’t push people to buy or sell. I’m looking to love what I do for a living (which I’m fortunate enough to do), and that means helping individuals to make the right decisions for THEM at the right time.

And I’m still sticking to the story that buying when interest rates are low is better. You get more purchasing power and if you do it before rates go up, you can maintain a relatively low monthly payment.

I’m bummed to see I missed this whole conversation months ago.

And David Gordon – your cynicism about Realtors is just ridiculously generalized. Until you’ve met me and talked to my clients, I think it’s a little brash of you to decide that my only goal is to push my clients into buying or selling a home. My goal is to be their real estate resource for life – and that doesn’t always mean getting them to make a deal NOW.

That’s how it hurts. Again, let’s say that you buy a house for $500,000 at 6%, putting $100K down. Pretty normal these days (well, a little on the cheap side for the Bay Area, but getting there).

Your PITI payments would be about $3000. After 5 years, you have paid down just under $28000 of the loan, leaving you with $372,000 to pay off at the sale.

But wait, interest rates have reared their ugly head, and mortgage rates for your putative buyer are 10% (they were 9+% in the early 90′s so this isn’t out of the ordinary). Now your buyer is looking at $4150/month in PITI payments. So incomes would have had to have gone up 30+% in just 5 years to accommodate a break-even price for you.

In fact, if incomes remained relatively the same, your house is now “worth” $365K, and you have lost your entire down payment and principle payments AND another $7000. You’re more than wiped out.

Now you may argue, correctly, that rates will only go that high if inflation comes back higher, meaning wages (and equivalent rents) will increase (not to mention you’re paying back with inflated dollars, etc). Of course this argument fails a bit when REAL, inflation-adjusted wages decline, as they have been.

This is why I tend to ignore interest rates, and also why prices are more correlated to income and rents than interest rates

I also was not basing anyone. Mainly I was interested in how the same data can be used to paint so many different pictures. This phenomenon is univeral and certainly not the domain of Realtors.

But you are right about holding onto a property for 8-10 years and likely being in a better position, even if your timing was the worst possible, you’d likely be slightly ahead in nominal terms.

David nailed it. Never never never buy based on rates – you buy based on price. You can change the rate later but you can’t change that inflated price you paid!

As for agents knowing the market well–you’re right, a lot of them know the market quite well.

The problem with hoping to make a return 8-10 years from now is the likelihood you’ll be forced to move in less time than that. If you’ve never been in that position, great, but it happens to a lot of people, and if you’re likely to move in less than 5 years, it’s probably better to rent.

that’s all