My real estate agent friends tell me that this is the most asked question of them. Can prices go lower?There is more to buying a house than the cost of the house. There is also the cost of the money. Today the interest rate on a 30 year fixed mortgage with good credit is 4.375%.
What happens, if while you are waiting for prices to go lower, interest rates go up just 1%. This is where they were two years ago. How long might it take for them to go up just that 1%. 5.375% sure doesn't seem like an outrageous mortgage rate for most of us who have been in this business any length of time. What does that 1% mean.
Well, if a $500,000 house drops 10% in value but interest rates go up 1 point, there is no benefit in buying the house unless you are in it less than 10 years. 1% more interest in 10 years cost the buyer $50,000 on a $400,000.00 mortgage. If they pay off the loan over 30 years, it cost them $88,000.00 in interest over the term of the loan.
So buyers need to consider the interest rates vs. the home prices. The bigger the mortgage the greater the gamble. So you can tell those who ask you this question that it is possible that home prices could go lower, but it isn't likely that interest rates can go much lower. If you wait to see if home prices drop you may pay more for your mortgage and the net effect can be that you lose money waiting. It is a possibility. Nobody knows if home prices will drop or how much, and nobody knows if interests rates will go up or how far or how fast. Both prices and interest rates need to be considered.
