First Time Buyers: There is an Upside to the Downside

by Alex Stenback on April 3, 2009

The screen shot above from the Marketwatch Real Estate Weekly makes a point that often gets lost in the relentless stream of bad real estate, economic and banking news:

Low rates and low prices (plus $8,000 tax credits) have first time home buyers or those without a home to sell in an awfully good spot. 

Granted, home prices will probably fall further – by how much is anyone’s guess – but either way, mortgage rates will eventually climb, and thanks to the inflation-inducing effects of the bailout, they may move up a lot. 

Also, lest we forget, 30 year mortgage rates would be already around 6% were it not for $1.25+ Billion dollars being deployed by the Fed to keep them low. 

In other words, a combination of low prices and ultra low rates will not last forever, and rising rates often cancel out falling prices.

A quick rule of thumb to illusrate that last sentence: A 1% increase in rate is the rough equivalent to a $25,000 or 12.5% drop in price on a 200,000 home. 

What’s more, if prices do continue to drop apace, lenders, and even the FHA (whose facing huge defaults and may need it’s own bailout) will be forced to demand even larger down payments than the 3.5-5% minimums available now.

Is it the perfect time to buy?  Impossible to know.  But to paraphrase Voltaire (thank you google): Do not let the perfect be the enemy of the good.

{ 1 trackback }

Behind The Mortgage » Blog Archive » Green Shoots for Spring? March Real Estate Market Stats
April 10, 2009 at 8:55 am

{ 2 comments… read them below or add one }

Richard Stabile Bergen County Real Estate April 3, 2009 at 4:31 pm

The Fed has bought $1.2 Trillion dollars in morgtgage paper, plus all the tarp money and talf money. This is all working and has lowered rates. Buyers are out and are buying.
Yes they are looking for great deals and they are getting them. The idea is to facilitate the loans with liqudity. Also the Jumbo’s are now down. Bank Of America has a Jumbo’s to $3,000,000 with a 5 handle on it. It is a nervious and tough market. However the difference is there is a market again.

sickofthis April 15, 2009 at 7:45 am

Remember, People do not take advice from people that are in the mortgage, insurance, banking, or real estate business. They are all crooks who have over inflated everything in order to make money. The government is bailing them out and once we are out of this mess, they’ll go back to their same routine in order to make quick money. If someone tells you every time you see them, that now is the time to buy. Stay away from that person because they are a scammer. Aka, stock brokers, Real estate agents, appraisers, and mortgage lenders.

Leave a Comment


Previous post:

Next post: