|  Home
ownership is every American’s dream, but when looking at
the current market, people are faced with a market that has high
house prices and low mortgage rates. What to do?
The current market conditions of seemingly inflated
house prices and very low mortgage rates leave potential homebuyers
with a tricky dilemma: lock in the low mortgage rates now, or
wait for house prices to drop. A recent Wall Street Journal Online
article discussed some of the important things to consider when
deciding which direction to take.
Importance of Mortgage Rates
Chances are, you are either going to be faced with
a high house price and low mortgage rate today, or a slightly
lower house price and a higher mortgage rate. The key here is
that mortgage rates are likely to rise more than house prices
are likely to fall. For example, it is likely that mortgage rates
may rise, for example, from 6% to 8%, but it is pretty unlikely
that house prices will drop enough to actually make your mortgage
payments less. It can happen, but the odds are against you.
Length of Stay
Few of us can predict where life will take us in
five, 10 or 15 years, but these are some things you should consider
when deciding whether to continue renting, or to dive into the
real estate market. Due to the incredible pace of house prices
in recent times, and the typically low rate of return you get
from a house in the first place – if you are only considering
staying put for a couple of years, then you could find less equity
in your house when you come to sell than when you started. Alternatively,
this money could have been put to use in savings, which would
probably result in a high overall rate of return. However, if
you follow the age-old advice of staying put for several years,
then buying now makes a lot of sense, since any drop in house
prices should have recovered by now.
Type of Market
Finally, you need to take into account what
kind of market you are in. Some areas, such as the two coasts,
have high appreciating properties, and you get relatively little
house for your money. In these types of markets, house prices
are more volatile, and more likely to swing both up and down,
meaning that you could be caught on a down swing. Therefore, the
conventional wisdom is that these areas require long-term holding
onto in order to make good your investment. In other markets,
such as Houston, where house prices are less volatile and you
get quite a lot of house for your money, you can buy a house and
then move after only a few years and typically either be even
or ahead!
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