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Prices of real estate have climbed dramatically in the past 3 years. This is true for almost every area of the country. Some economists have even called it a real estate bubble. And everyone knows what happens to bubbles: they pop. At first glance, the typical first time home buyer might reasonably conclude that it would make financial sense to wait for real estate prices to come down, and then make a purchase. However, there is more involved than merely price. The price of real estate is very closely related to the cost to borrow money: interest rates. When interest rates come down, more buyers can afford the monthly payments. And more buyers in the market competing against each other has an auction effect. Prices for property get bid higher and higher. This is what has happened in a large way since 2001. Interest rates have been rising gradually for the past 24 months. Long-term mortgage rates are still very near historic lows, but have risen slightly. Short-term rates have risen more sharply, spurred in large part by increases initiated by the Federal Reserve. The primary reason for the increases in interest rates is the fear of inflation. Government statistics show that inflation is beginning to accelerate. While the cause of inflation is beyond the scope of this article, inflation is likely to continue to climb. For evidence, simply look at gasoline prices. If inflation is going to continue to climb, it follows that interest rates are likely to continue to climb. Following this chain reaction to the end result, and it follows that real estate prices will continue to soften. That has already begun to happen ins some markets, and we see no change in this trend for the foreseeable future. With real estate prices falling, the question must be asked, "Would it be worthwhile to wait for prices to come down more before buying a home?" The short answer is no. Let's assume that you are looking at a home that is listed for $200,000. With interest rates currently running at about 6.5%, the monthly payment on a $200,000 loan would be $1,264.14. If interest rates continue to rise, and all the evidence suggests they will, the price of that house might fall to $150,000. However, at an interest rate of 10%, the $150,000 mortgage loan would have payments of $1,316.36. Any savings in the cost of the home would be offset by an increase in the interest cost because of a higher interest rate. In this example, there would be no reason to wait, and this doesn't even take into account tax savings, which would add to the reasons to buy now instead of waiting. If you are thinking of buying your first home, now it the time to do it. You will not gain by waiting for prices to fall to more "affordable" levels. The only exception to this would be if the home was going to be purchased for cash, and no mortgage loan was necessary. If that describes you, then by all means we suggest you wait for prices to come down, sometime in the future you'll be able to get some significant savings. But for everyone who will be borrowing to pay for their home, the sooner you make your purchase, the better off you'll be. Now is an excellent time to take advantage of interest rates that are still very, very low.
Article Source: http://www.financemanual.com
Greg Roy is a widely recognized construction and real estate expert. Through his website First Time Home Buyer he has helped countless numbers of first time home buyers learn how to turn their dream of home ownership into reality.
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