photo credit: limonada
I received a call yesterday from a couple wanting to see one of our listings. This was the second time they had seen the home, having been through the weekend before during our open house. This time they brought Mom with them, and all the kids. As the couple methodically went through every cupboard and closet, the kids were picking out their rooms-they obviously loved the house.
We started talking about what their next steps were and through our discussion I learned that they were feeling rather tortured about the home and the market in general. They worried about the house being priced a bit too high (as buyers are prone to do) and that they would overpay for it. They were concerned about where the market was headed, citing recent news about percentage drops and layoffs. It got me thinking about why we really buy homes anyway. Are they an investment or are they a place to raise our families, create memories, at the very least, put a roof over our heads? I suppose they are both but the last decade has really led most of us down the path of the investment mentality and I could see that in this situation- Although they loved this home, they were scared.
I understand. Many of us have been burned in the market, looking at our current mortgage balance, wondering if we will ever be able to sell and move. Or worse yet, we have had to go the way of a short sale, a loan mod or a foreclosure. So…I get it…and I have a hard time arguing against that point. Regardless of whether a home is over priced or not, when people are so worried about what the market might or might not do, how do we make a decision?
Coincidentally, at our weekly meeting this morning, our venerable VP of Sales and “numbers guy”, Ron Sparks had obviously been pondering a similar question. What will it take to get a buyer off the fence? Assuming the house is the right one and the price is fair (for both parties), what will overcome the fear?
Well, right now? Nothing. But a tick up in interest rates may do it and here is why. I thought this was an interesting exercise and wanted to share it with you.
Here is the spread sheet showing what will happens to a monthly payment and the cost of a loan over time should interest rates go up 1% or 2% while at the same time the market drops the price of the home $25K or about 7%.
If you are paying all cash, this obviously doesn’t pertain to you, but for most of us, taking out a mortgage is part of the plan. And although we do have to keep our eye on the market, we can’t forget about the incredibly low cost of money right now. This means a lower monthly payment and significant savings on the total cost of the loan. Of course, all of this assumes that you are going to stay put for a few years. So, our advice to buyers out there? Timing the real estate market is like timing the stock market-virtually impossible. Be sure to look at all of the factors around buying a home. Although the market has been tough on us all, we do have a bright little ray of sunshine in interest rates right now so put away your umbrellas and bask in it. It won’t be around forever.
