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Ok, let me run the numbers for you (and everyone else) to show what I mean.
$250,000 loan amount @ 5.5% 30yr is $1420/month payment
$250,000 loan amount @ 6.5% 30yr is $1580/month
$225,000 loan amount @ 5.5% 30yr is $1277/month
$225,000 loan amount @ 6.5% 30yr is $1422/month
I have my opinions, however I wanted to give a basic example on where monthly payments are for a decent size mortgage.
OK but focusing on payment doesn't give the cost of borrowing the extra $25K
Scenario 1 - Pay $250,000 for house. 5.5% loan means you pay $511,200 for that house once it is paid for. 6.5% loan means you pay $568,800 for house.
Scenario 2 - Pay $225,000 for house. 5.5% loan means you pay $459,720 for home. 6.5% loan means you pay $511,920 for house.
So lets compare the two. Is it better to get a house reduced by $25K or is it better to get a point shaved off the loan? i.e. Compare home $225,000@6.5% vs $250,000@5.5%. You get a whopping difference of $720 spread over 30 years. So basically the same.
However how many people keep a loan for 30 years these days? The person with the $225K mortgage is much better off right from the start than the one who got the $250K mortgage. Thus it is better to get a lower price first.
OK but focusing on payment doesn't give the cost of borrowing the extra $25K
Scenario 1 - Pay $250,000 for house. 5.5% loan means you pay $511,200 for that house once it is paid for. 6.5% loan means you pay $568,800 for house.
Scenario 2 - Pay $225,000 for house. 5.5% loan means you pay $459,720 for home. 6.5% loan means you pay $511,920 for house.
So lets compare the two. Is it better to get a house reduced by $25K or is it better to get a point shaved off the loan? i.e. Compare home $225,000@6.5% vs $250,000@5.5%. You get a whopping difference of $720 spread over 30 years. So basically the same.
However how many people keep a loan for 30 years these days? The person with the $225K mortgage is much better off right from the start than the one who got the $250K mortgage. Thus it is better to get a lower price first.
With the lower price though you are waiting 6 months to a year in my example. If you have to pay rent, you are wasting $1500/month for 6-12 months when it could've been applied to the mortgage.
Ok, let me run the numbers for you (and everyone else) to show what I mean.
$250,000 loan amount @ 5.5% 30yr is $1420/month payment
$250,000 loan amount @ 6.5% 30yr is $1580/month
$225,000 loan amount @ 5.5% 30yr is $1277/month
$225,000 loan amount @ 6.5% 30yr is $1422/month
I have my opinions, however I wanted to give a basic example on where monthly payments are for a decent size mortgage.
In your example, I'd like to point out that the first scenario and the fourth scenario, your monthly payment is almost the same. So it doesn't matter whether someone waits to buy a home or buys one now (if the market continues to decline and rates go up).
I think what this shows is that people shouldn't for fall the saying 'it's a great time to buy because of low rates.'
I think some people may feel rushed into buying a home because of these sayings when they might want to focus on elminating debt and saving a downpayment.
In your example, I'd like to point out that the first scenario and the fourth scenario, your monthly payment is almost the same. So it doesn't matter whether someone waits to buy a home or buys one now (if the market continues to decline and rates go up).
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That's not true if you are currently paying rent which most people do if their waiting to buy.
I'm making the assumption the market drops another 10% in 6-12 months, so you have to pay rent for that time realistically. That's a true cost (roughly 10-15K lost) between scenerio 1 & 4.
I feel I am in on a "which came first - the chicken or the egg" debate.
BTW - the last time interest rates shot up, the price of homes DID NOT go down. Now, I am just relaying what I lived through when interest rates were at 13%. Take it or leave it - I tend to base my predictions on the future based on what I have seen happen in the past.
I feel I am in on a "which came first - the chicken or the egg" debate.
BTW - the last time interest rates shot up, the price of homes DID NOT go down. Now, I am just relaying what I lived through when interest rates were at 13%. Take it or leave it - I tend to base my predictions on the future based on what I have seen happen in the past.
But what were wages like, were they still increasing during that time? And what was the unemployment rate like, was it increasing like it is now?
I'm not sure why people think renting is wasting money. If I have 500k at say 5% it spins off 25000/yr. So I can spend that on a rental of about 2100/month. The same 500k locked up in a house doesn't spin off any cash, all I have is the potential for any sort of appreciation, I only get it if I sell and the market has to be right. Locking up a large amount of money in a home is a bad investment move...
Here's something to consider: I read earliar this week (can't find the art. now but I think NY Times) Toll Bros said they will RAISE their prices on about 40-50 % of their building projects so as to make up for loss revenues incurred in '09.
So, we are all assuming that builders will hold or lower their prices. I don't know and can't venture a guess as I am not a builder.
So, we are all assuming that builders will hold or lower their prices. I don't know and can't venture a guess as I am not a builder.
Or... go out of business because their product is no longer needed. The other effect of the massive housing boom was to bring a lot of capacity into the market. This is going to go down too. Just because a developer says he is going to raise prices means it's going to happen. Who exactly will be there to pay these higher prices? It's not like people are not being laid off in droves.
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Toll Bros raising their prices
