Friday, February 23, 2007

Home buying: Buy now? Or wait for a price drop?

A reader wonders whether rising mortgage rates would wipe out any benefits from prices falling further.

(Money Magazine) -- Question: My wife and I want to buy. Should we wait to see if prices fall, or take advantage of today's low mortgage rates? - Heath Hewett, Columbia, S.C.

Answer: If you're asking whether a significant price drop would lower your monthly payments more than a big increase in mortgage rates would raise them, it's easy: You should probably root for the price decline.

For example, the monthly payment on a $300,000, 30-year fixed-rate mortgage at today's rates is $1,847. Rates would have to rise to 8.1 percent - nearly two full percentage points - before a $250,000 loan would cost that much.

But it sounds as if you're really asking whether prices in your area are likely to decline enough to justify holding off on a purchase. When it comes to that, frankly, your guess is as good as ours.

While there's no lack of experts making predictions about where home prices are headed in the next year, no one knows for sure.

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