Act Now or Wait?

First, let’s look at interest rates. As the market has improved the historically low rates of 3.125 % (sub 4%) are gone… unless you’re looking at an ARM. The interest rate table provided here shows a conservative projection at where interest rates for 30 year fixed-rate mortgages will go over the course of the next few years. Note: The normal rate for 30-year mortgages has been between 7 and 8%

Interest Rates Projections Over The Next Five Years

That means the cost of borrowing money is on the way up. Now if you don’t plan on having a mortgage you can ignore this factor… You might want to wait… or maybe not, depending on whether you are moving up or downsizing. Regardless, if you have to borrow money to purchase that new home this is a more significant factor than you may imagine. To illustrate my point, I provide the following chart, based on the value of your new home being static, that is not enjoying the 4% average appreciation rate you will expect on your existing home… Illogical, yes; but bear with me.

Note that the Payments cited above are Principal & Interest Only… Taxes and Insurance are not included.

Notice what happens to your payment over time based solely on the change in interest rates. As they say in the automobile dealership… it’s the payments not the price that is important.

Of course when you move, you’ll probably want to move to a better neighborhood… most people do. Not only will that target neighborhood experience appreciation… It’s possible that it may experience an appreciation rate higher than the 4% we’ve used for your current home. But let’s not stretch numbers to make our point. Assuming an average appreciation rate of 4% and that you won’t buy any more home than you have now… take a look at what happens to price and payments over time.

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