"I was thinking of buying a house in July but have now begged off because housing prices keep falling. Why pay $120,000 when I can pay $110,000 in a few months, or $100,000 next year?"
It's true: Home prices can (and probably will) drop a bit more over the next few months. Waiting for the bottom seems like the smart thing to do...
...except when it isn't.
Before you decide to wait, be sure you're looking at the whole economic picture. Make your decision with full knowledge of the financial winds that are blowing today!
There are three factors you should consider when making the decision to buy now (or pay later!): Interest rates, rents, and inflation.
Stupid-Low Interest Rates Can't Last Forever!
A client of ours just closed on a beautiful home with a 30-year fixed loan at 4.5%! No, that's not a typo: 4.5% fixed-rate financing for the next 30 years. If you are 50 or younger, you've never seen mortgage rates this low your entire lifetime.
But guess what? It's not going to last forever. And once rates start rising, it will become harder and harder for more folks to qualify. In a year from now, you may not even be able to get a mortgage.
You've Gotta Live Somewhere (and Rents are Going Up!)
If you are thinking about becoming a first-time home buyer, you're probably paying rent right now. Need we remind you that every month you're tossing good money right into a hole in the ground? Average rent in Atlanta is now about $850. So if you wait a year, you'll have blown through TEN GRAND with nothing to show for it (except a dozen check stubs).
Meanwhile, who says your landlord won't raise your rent next year? Or next month? Go talk to people who are out looking for rental homes these days: Monthly payments are creeping up. Now that so many people have decided (or been forced) to rent, there's lots more competition for the best homes. More competition means higher rents. It's simple supply and demand.
(I'll bet a 30-year fixed loan is starting to sound a little better, now, isn't it...)
It's Back to the Future with INFLATION!
Here's how we think about inflation: Over time, prices tend to increase. How much they increase depends on how much fiddling the government does with interest rates and U.S. Treasury bonds and such. And, for the last 3 - 4 years, our government has done a whole bunch of fiddling. The net effect is that the rate of inflation (currently at 3.6%) is poised to go up, possibly even back to the double digits like we saw in the 70's and early 80's.
Why should you care? Because you're trying to save up for a down payment, right? Unfortunately, inflation steals purchasing power away from your money, even if you just stick it under a mattress for the next 12 months. In fact, unless you are able to invest your down payment money and earn a rate of return at least equal to the inflation rate, you are actually losing money.
And that's exactly why higher inflation is making a comeback: It forces both businesses and individuals to invest capital, thereby jump-starting the economy. How high it will be allowed to get is anyone's guess, but you'd better believe it: Inflation is on the way!
For the average consumer, the best defense against inflation is investment. And for most consumers, their biggest and best investment will be their own home.
Do you see things differently? Leave us a comment and tell us what you think!
