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.