The Mortgage Man

Get more out of your mortgage experience!

Thursday June 12, 2008

If you are waiting for the bottom in the real estate market, you may lose out.

As we continue to see volatility in the financial markets, the question comes up about when is the right time to buy in today’s market.  Do you wait until the nightly news tells you it is time?  Do you listen to your real estate agent who clearly has a vested interest in the transaction?  Do you listen to the statistics reported for your local area?

Real estate is a highly localized market.  What is good in your backyard, very likely is not the same 100 miles down the road.  This fact alone should make you reconsider blindly following the talking heads on T.V.  That being said, there are more factors at play when purchasing property than just the market price as a whole, or where the “bottom” may or may not be.

In the Bond market today, we will very likely see the 25 day moving average cross over the 200 day moving average.  This is significant because it means that short term volatility is turning into a long term trend.  Historically, when the short term average moves over the long term average, the trend will continue to move in that direction.  Newtons law explains that “objects in motion tend to stay in motion”.  It is the same reason you wear a seat belt in a car, and the same reason that football players wear pads.  Over the last 2 years, every time the short term average has moved across the long term average, the trend has been in that direction for at least 3 months.  While we are living in a time that goes against the grain historically, certain truths still warrant discussion.

So what does that mean if you are looking to buy a home, and you are waiting for the bottom to hit in the market?  Here is an example:

If you get a 200,000 mortgage at 6.25%, your monthly payment would be $1231.43 (not including taxes and insurance and mortgage insurance).  If you continue to watch the market and the same mortgage comes down to $190,000, but at the same time rates go to 7.25%, your new payment would be $1296.13.  So congratulations, you got a better deal on the house only to have a payment that is $64.70 per month higher.

If you are paying cash, this example holds much less weight.  But in the real world where most people borrow money to buy a home, it is significant.

My point is, don’t watch the national news to get information about whether you should buy or not in your local area, it is just too general to be accurate.

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2 Comments»

  sworlando wrote @

It’s hard to time the market so you need to look at buying real estate with a time horizon of 5-10 years.

  Jim Lee wrote @

NOW is always a good time to buy for me.


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