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Welcome Home: If your goal Is to buy low, buy now

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The following is from the KCMblog.com, published on March 1. There is a very famous saying which asserts “Buy Low, Sell High.” It is obviously great advice no matter what the investment. The attached graph shows the cycle of investments. It shows the points of maximum risk and maximum opportunity when purchasing. We want to buy low (point of maximum opportunity) and sell high (point of maximum risk).The challenge is how to determine when we have hit bottom if you are a purchaser. The only time you can guarantee a bottom is after you pass it.However, there is more and more evidence that the COST of a home has in fact hit bottom. Notice we have used the word COST. Unless you are an all cash buyer, you must take into consideration the expense of financing a property to determine the true cost of purchasing the home. Interest rates have increased over the last quarter; and the rise in rates has counteracted any fall in prices.Let’s look at an example:Let’s say you were going to take out a $200,000 30-year-fixed-rate mortgage in November of 2010 to buy a house. At that time, interest rates were 4.17 percent (as per Freddie Mac). Your principle and interest payment would have come to $974.54. According to the most recent report from Case Shiller, house prices fell 3.9 percent in the 4th quarter of 2010. Rounding to 4 percent let’s say you can now get the same house with a $192,000 mortgage (4 percent discount from November). Current interest rates are now 4.95 percent (as per Freddie Mac). Your principle and interest payment would now be $1,024.84.By waiting to pay less for the PRICE of the house, the COST increased more than $50/month. That adds up to more than $600/ year and over $18,000 over the life of the loan.Bottom Line? If you want to buy low, buy now. It appears COST has hit its lowest point.To further support this idea, Lane Hornung, President of Colorado HomeFinder.com says in a recent article, “The most dominant factor if you are buying today is the impact of rising interest rates, not a major, sustained drop in housing prices.” The rule of thumb is that a home has to drop by 10 percent to make up a 1-percentage point increase in interest rates. In other words, if you are considering a purchase at $400,000 and 5.25 percent, the price has to drop to $360,000 if the rate jumps to 6.25 percent. Stated another way, a rate increase of 1 percent is a wash, if the home price also drops by a corresponding 10 percent.Are home prices going to drop another 10 percent? Do you want to keep waiting…? “If somebody asked me to bet $1,000 on whether interest rates were going up by one point, or homes were going down by 10 points in the next year… I’d take the bet on rates rising.” Hornung said. Rising rates will cause sales to go down, but that can be offset by other factors, Hornung said. “One of the reasons interest rates are going up, is because the employment picture is getting better, and that will help to offset the impact of higher rates.” So, if you’ve been thinking about it, stop thinking and start acting. Locally, inventory is down and prices seem to be flattening. Meanwhile, it’s true that mortgage rates are on their way up. The bottom is here, and the time to BUY is NOW.Welcome Home is written by Butch Elich & Paula Parker. Search for them by name on Google, Twitter, or Facebook.


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