Real Estate Purchases: Higher Home Prices Now or a Higher Interest Rate Later?

August 6th, 2007 • Related • Filed Under • by admin

The real estate market in North America is in a bit of a flux right now. Some rural markets are doing fantastic, while other bubble real estate markets are crashing. There are some places where you couldn’t sell your home to save your life, and in other places the market’s just fine. Overall the real estate market is softening a bit, but prices are still relatively high. If you’re planning on buying a home in the near future, you’re faced with a bit of a dilemma. Do you buy a home now knowing that the prices are still somewhat inflated, or do you wait and possibly face higher interest rates on your mortgage in the future?

A CNN report stated that home prices are at about 3% less than they were at this point last year, and chances are they’re going to get cheaper for a while to come. There’s been some fairly consistent decreases in home prices for about the last year now, no one can say for sure how long it’s going to last for, but many analysts are predicting that the real estate market might not recover for another two years.

We’re also faced with another dilemma. Mortgage lenders are already severely limited loans to sub-prime lenders and it’s likely that the number of people getting mortgages is going to decrease dramatically because there’s just less money to loan out available. This also means that the interest rate that we pay on mortgages is also likely to increase in the near future.

Unfortunately the answer lies in the details. It all depends how much prices go down and how much interest rates increase. There are all sorts of people who would love to offer you estimations as to where prices and interest rates will be going in the next few years, but no one can say for certain. Predicting such economic indicators is a very tricky business. Even if you had the best data available to you, the numbers would probably change before they are supposed to become a reality.

If you’re going to buy a home, have minimal debts and a nice down payment to do so, just go ahead and buy yourself a home. There are plenty of them available, don’t wait or not wait for two years depending on what the real estate market does. Two years from now market conditions could be even less favorable to buyers, and you’ll find yourself wanting to wait even longer to buy a home. We do know that over a long period of time, real estate prices tend to increase in value, meaning that you’re likely to not lose any money if you stay there for a decade or more.

It’s okay that the market goes down a bit in the short term, you’ll still be fine. Unless market conditions are absolutely crazy, say like they were during the Carter administration, don’t let them effect your plans on buying or not buying a new home.