Tuesday, July 09, 2013

Waiting to Buy Could Be Costly

A figure recently released by the KCM blog supports what statistics have been suggesting about the rising price of home ownership over time.  In short, the cost of homes is climbing, and at the same time, the cost of borrowing money is climbing, causing the total cost of home ownership grow at a notable rate.

KCM compared approximate mortgage interest rates from this time last year to this year, using a 10% increase in price values to allow for the general upswing in housing prices over the past year (many areas going up by double digits).  Here is what they found:

With the cost of borrowing money going up right alongside the cost of homes going up, home ownership is only getting more expensive over time.  Playing the waiting game, in this instance, will not likely be in your favor.

The Good News
Is it too late?  In a word, "no".  Home prices are still well below their 2006-2007 peak prices, and it will continue to take some time to reach those levels.  Interest rates are also, from a historical perspective, very low.  That said, all indicators suggest that home prices are continuing to climb, and with interest rates growing in tandem, the time to act is upon us.

30-Year FRM Rates 1971 - 2012
Mortgage rates over the last 40 years. 
Reproduced with the permission of Mortgage-X.com

You can lock in your cost by buying a home now.  Obviously the cost of purchasing your home is determined by the price you negotiate at the time of contracting.  Similarly, when you apply for a mortgage, your lender will "lock" in your rate, and depending on the type of mortgage you obtain, your rate will be locked in for 5, 7, 10, 15, or 30 years. 

Do know that buying is still overwhelming preferable to renting, (Trulia states that so long as mortgage interest rates are under 10.5%, this will be the case), but if you are looking for your "best deal," now is truly the opportune moment.

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