Blog

The Cost of Waiting for Prices to Fall


Many purchasers have been sitting on the sidelines waiting for home prices to hit bottom. They want to guarantee that they are purchasing at the best possible price. Like them, we also believe that prices still have some room to fall in most markets. However, we disagree that waiting is a good financial decision. The buyer should not be concerned about housing prices. They should be concerned about cost.

The cost of a house is made up of the price AND THE INTEREST RATE they will be paying. Two different pieces of news released yesterday highlight this point.

PRICES

The National Association of Realtors (NAR) released their 4th quarter housing research report. In the release, they reported that home sales rose 15.4% in the 4th quarter over the 3rd quarter. They also showed that prices remained stable during the year:

The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009.

A buyer who delayed a purchase might find solace in the fact that prices have not increased. However, the other news released yesterday paints a different picture.

INTEREST RATES

The Primary Mortgage Market Survey was released by Freddie Mac which showed that the 30 year fixed rate mortgage was at 5.05%. Frank Nothaft, vice president and chief economist of Freddie Mac said:

"Long-term bond yields jumped on positive economic data reports, which placed upward pressure on mortgage rates this week…As a result, interest rates on a 30-year fixed-rate mortgage rose to the highest level since the last week in April 2010.”

So prices have remained stable but interest rates have risen dramatically in the last 90 days. What does that mean to a buyer looking to purchase a home this year?

The price is the same. It just costs more.

Let’s show you what the news means:

By sitting on the sidelines for the last 90 days a purchaser lost:

  • $89.44 a month
  • $1,073.28 a year
  • $32,198.40 over the thirty year life of the mortgage

If you buy a $340,000 home, double all these numbers.

Bottom Line

Even if prices fall another 10% this year, the cost of a home will increase if interest rates go up more than 1%. Buyers should not worry where prices are going. They should be concerned where costs will be later in the year.

Attention All KCM Subcribers:

You can find 20+ pages of more great information for your Buyers' Conversational Manual in KCM's February Edition. If you haven't already done so, download the pages for your Listing Conversation Manualavailable in the January Edition.

Not yet a subscriber? Click here.

Share

About The KCM Crew

We at The KCM Crew believe every family should feel confident when buying & selling a home. KCM helps real estate professionals reach these families & enables the agent to simply & effectively explain a complex housing market. Take a 14-Day Free Trial of our monthly membership to see how we can help you!

94 Responses to “The Cost of Waiting for Prices to Fall”

  1. TR February 11, 2011 at 1:10 pm # Reply

    AHH !

    Very nicely done. But what do we do w/ the strong cash (or mostly cash) buyer(s), who all markets have. At some point the values must stop falling, but I see this group as less affected by rate, and more by price.

    Thoughts ?

    Enjoy your topics

    TR

  2. Ruthmarie Hicks February 11, 2011 at 1:42 pm # Reply

    The caveat I would add is to do your homework. If you plan to be in a home 10 years - calculate the cost. If you plan to be there under five years or you are paying cash - calculate accordingly. Though in general - I think that people should rent if their timeline is under five years.

  3. Paula Henry February 11, 2011 at 1:43 pm # Reply

    I am seeing this happen in many areas where I live. Buyers who have not acted on a home at an interest rate of 4.25% are now wishing they did.
    As far as cash buyers, they seem to think they can always come in much lower, but those homes are getting multiple offers and too low will lose the deal.

  4. Ruthmarie Hicks February 11, 2011 at 1:44 pm # Reply

    Sorry - I hit the submit by accident! Just wanted to add that this was very well done. I did something like it on my own blog in October. The buyers didn't listen and now I have a couple of them who have lost enough buying power so they are out of the market.

  5. Angela Batchelor February 11, 2011 at 2:31 pm # Reply

    I did a TV segment on this exact same topic this morning! What a great way to illustrate this for buyers!

  6. Josette Skilling February 11, 2011 at 3:43 pm # Reply

    My own son and his wife experienced this firsthand. At 4.25% they had purchasing power up to $510K but once the rate crept up to 4.75% they lost $15k in purchasing power to get to the same payment. The really hard part of this story was trying to get a seller and seller's agent to understand that their listing was overpriced and that the offer in hand was not "grossly under" but right on the market. With a rate lock ticking away there was not enough time left to try and work it out with that seller, who ended up withdrawing their home.

    So it's not just buyers but sellers as well who need to understand how important it is when those rates rise. Price ultimately can't stay the same if those rates stay higher because the buyers won't qualify anymore.

    Keep up the great work! More folks need to understand how vital financing is to the whole picture...

  7. Gail Yuhas Cove February 11, 2011 at 5:46 pm # Reply

    The rise in mortgage interest rates is convincing impetus for the cautious, deliberating buyer to take action now and through this spring. Those trend-watching, market-knowledgeable, patient consumers will take advantage of the yet low but climbing rates. Possibly choosing to purchase a tad bit less of a property than originally planned.
    The juxtaposition of increasing rates and the resultant effect upon financing affordability will push sale prices of entry-level homes somewhat lower - in order to make up for the “affordability differential” for entry-level and retirement-home buyers. As 2011 progresses, the “affordability differential” will likely encroach upon the sale prices of mid-range and upper-range homes reflecting the consumer shift from one home value range to the next greater.
    We have seen (what I term) the “affordability differential” before. You have described it perfectly in your article.

  8. Billy Jalbert February 11, 2011 at 7:39 pm # Reply

    @TR - I always ask the buyers if they are cash or a loan and reference what I consider to be two different windows of opportunity. IMO The folks with cash have more time and negotiating power. @ The KCM Crew - love the tips and insights into better, more professional salesmanship that you provide.

  9. Lonni McDonough February 11, 2011 at 8:09 pm # Reply

    Rising rates have also put 2 of my buyers at risk of losing deals. Rate locks expiring and putting buyers above budget or throwing off financing ratios is real and we need to educate consumers. Thanks KCM Crew for all you do to provide us and the public with timely Real Estate information!

  10. Charles McDonald February 12, 2011 at 8:32 am # Reply

    Excellent post.
    The cost of a home not always just the price.

  11. Daniel Di Matteo February 13, 2011 at 6:07 pm # Reply

    I've been sharing this kind of information for a year but many people are still so fearful or set in their own ways which leads them to make bad financial decissions.

  12. Frederick Ritscher February 14, 2011 at 5:13 pm # Reply

    Understand what is being said, but, anyone who is so leveraged that a 1% rise in the interest rate "puts them out of the market" should perhaps check again on just what sort of domicile they think they require, and what it should cost. The present state of the market, and cheap money has led a considerable number of would be home owners down the primrose path to foreclosure and bankruptcy, and they did not get there without help from the very forces that are whooping up "buy now before you lose again nonsense."

    • Steve Harney February 15, 2011 at 9:18 am # Reply

      Hi Frederick,
      I'm confused by your last comment. Are you suggesting that, if someone is going to purchase,they should wait? If so, on what are you basing that strategy?

  13. Jane Myrenget February 15, 2011 at 11:04 am # Reply

    This is valuable information for buyers and sellers. I have too many clients "waiting for the bottom" to happen. Great info to pass on.

  14. Christian Durland February 15, 2011 at 9:19 pm # Reply

    Steve....I actually interpert Frederick's comments to mean that all of us in the Real Estate and/or Mortgage Industries are to blame for "mortgage meltdown" due to his obvious belief that we have nothing better to do than to constantly tell people they should real estate in any market.

    However, what Frederick is missing is that from circa 2001 - 2007, it wasn't us in the industry that were the first ones telling potential home-buyer's they should buy, it was the potential home-buyer's friends, family, co-workers, and neighboors telling them they should buy, because they had just bought, and subsequently those potential home-buyer's were knocking on our doors asking for loans and real estate services. It was the media blasting on a regular basis about how "hot" the real estate markets were, and that you needed to get in now. It was the reality t.v. shows profiling real estate investors flipping properties for big money, etc. Furthermore, it was consumers feeling confident about thier jobs and life in general, and the booming credit economy that was proping it all up. We as Realtors and Mortgage Originators were merely facilitators of demand.....I didn't have to even run numbers, present math, explain Cost vs. Price, or barely prospect for potential home-buyer's....they were abundent, ready and willing.

    The affordability index is at an all-time high, so it is a fact that the current time presents one of the best times to purchase real estate in all of our country's history...period....regardless of weather or not consumers believe what we say as industry professionals, the numbers can't and don't lie.

    Rates will go up at some point, and along with it home-prices and other goods and services due to economic growth....weather that happens in 5 months or 5 years, it will happen....all I know is that we are well, well, well off the top, and I agree, and I am telling my clients with conviction, while all the other aforementioned friends, family members, neighboors, etc. are not, that if you have the ABILITY, that now is the best time to buy not only real estate, but as much of anything else you can too!

    Remember....Warren Buffet is famous for saying: "Be fearful when others are greedy and greedy when others are fearful."

  15. jill February 17, 2011 at 2:24 pm # Reply

    Come on Christian, the I may have been wrong, but so was everyone else" routine is crazy. Leading up to the crash and well into it, we were all selling homes and telling buyers that you can't lose buying a home, and look what happened. We so share the blame.

    As for the affordability index, luckily buyers haven't bought into that bull as well, because if you bought a home in the past 3 years, it has gone down in value. And who says that the market is going to get better anytime soon. Buyers are finally showing the restraint they should have shown for the past 7 + years. Just because home prices could have dropped by a high % doesn't mean that the home is a good value. All you're doing is paying the new retail, and that's no bargain. And with all due respect, you are no Warren Buffet, so the world might want to wait until he says it's ok to dip your toe into the water once again

  16. Gregg Cohen February 18, 2011 at 1:04 pm # Reply

    I agree 100% with this article. As investors, we have to keep our sights focused on the end goal which is a return on our investment. Price is only one factor of the overall returns (and many times its the least important.) Many times investors let the emotion and thrill of "getting the best deal" corrupt their decision making process and, ultimately, their investments suffer.

    What most investors don't realize is that if you're always looking for the absolute bottom of the market, it's impossible for you to ever take action. That's because you will never know for sure if you are in the bottom of the market. It's always an insight gained on past historical data. And what's your rate of return going to be if you never take action because you were always looking for the bottom? A big, fat 0%!

    So, in order to give yourself the best chance of reaching your investment goals, you must make your investment decisions based on your expected ROI based on current market conditions. Don't fall into the trap of always trying to get the best deal or else you'll be sitting on the sidelines watching all the other investors who took action reach their financial goals!

  17. brad February 18, 2011 at 1:28 pm # Reply

    since when does the "median" have anything to do with the value of a home, or that prices are increasing or decreasing. Median is simply the middle. It's the number that separates the lower half from the upper half, of all the homes that sold. It's not an indication of prices increasing or decreasing. It's a bogus number for the scenario presented here, which is to say that if you didn't purchase a home and the median price went up, then the home you waited to purchase increased as well. Not true.

    Someone would be incredibly stupid from using the median number to influence their buying decisions

    • Steve Harney February 18, 2011 at 1:37 pm # Reply

      @Brad,
      As mentioned in the blog, that is the number used by NAR to determine price movement. Which number do you suggest?

  18. Brad February 18, 2011 at 4:22 pm # Reply

    Steve, it's impossible to use a single number, ot to use generalities for any market, since each market has several niche markets with itself.

    Homes selling below $500k may be doing quite well, and it could be time to start raising the prices. Whereas, in the middle range markets in the same town it could be losing ground, and the luxury market could even be tanking...all at the same time. And that is exactly what is happening all over the country. So how can you possibly generalize the market, unless of course someone is doing it just to mislead sellers and buyers. Everyone has to analyze every market they live in.

    The NAR generalizes it all the time to achieve the market condition that they want to project. They're just as bad as the Wall Street guys are when they're telling one group that the product is a winner, but knowing quite well that it's a flop. It's all done on purpose

    • Steve Harney February 18, 2011 at 6:22 pm # Reply

      @ Brad,

      You're point that real estate is local of course makes sense. However, NAR uses a single number just as the DOW does, just as the S&P 500 does and just as NASDAQ does. It gives a feel for where the market is headed.

  19. Brad February 19, 2011 at 6:02 pm # Reply

    The Dow is a single number based on a formula encompassing the activity of, what 00 companies, that are a broad grouping of companies...not just one company. And the same holds true for the other stock exchanges.

    As for the NAR check ot the link below from a 1000wattblog.com post, where an article in Inman point to how this mostbtrusted trade association, manipulates and manufactures and lies about the stats. They make this crap up from small sampling of numbers to achieve a positive outcome. Steve, do you condone such actions, because to me it's criminal. Their numbers are off 10-20%. Time to fire the paid liar Lawrence Yun, and the gov't should investigate them just as they're doing with wall street for market manipulation.

    the NAR knew that the economy was crashing, and the said nothing! You may want to stop quoting them in the future.

    http://1000wattconsulting.com/blog/2011/02/friday-flash-frontdoor-fuzzy-housing-math-and-live-burrito-cam.html

    • Steve Harney February 19, 2011 at 11:43 pm # Reply

      @ Brad,
      A couple of points:
      1.) The Dow consists of just 30 stocks yet represents the entire stock market.
      2.) Have you read CoreLogic's original study regarding the NAR inaccuracies?
      3.) Have you read NAR's actual response?
      4.) Brian Boero (1000Watt) is a friend and a great mind in the real estate industry. However, he has a penchant for dismissing data from many sources in our business. As a matter of fact, I am debating him one-on-one on this issue next month in Las Vegas.

      You feel very strongly on certain issues. Read the actual reports and let us know what specific points in the reports you have issues with. I love your passion and am interested in what you think after reading the full reports.

  20. Gail February 25, 2011 at 10:45 am # Reply

    What do you say to a buyer that is a cash buyer and can close 30 to 45 days but the seller will not accept the offer as they feel it's to low for them. This home has been on the market for over a year and no offers.

  21. You forgot about me February 28, 2011 at 3:44 pm # Reply

    How about those of us who are waiting to buy but intend to BYPASS THE INCREASE IN INTEREST RATES by putting a lot more money down on our mortgage loan? That is, the banks make less money off of us because we decided to rent until we had enough saved up enough to laugh at interest rate increases.

    Better to buy when rates are high. Home prices can only go up in such a situation. Save up and buy the house outright. Skip the interest loan. No profit for the bankers.

    I noticed you didn't mention those people in your article. Hmmm.

    • Steve Harney February 28, 2011 at 6:08 pm # Reply

      @ You forgot about me
      Obviously, any cash buyer will get a discount. If money is the only reason they are buying, waiting probably makes sense.

  22. patrick.net.follower February 28, 2011 at 8:27 pm # Reply

    @jill thanks so much for your comment - at least someone is willing to be honest!

    Low interest rates make debt affordable, they don't make houses affordable.

  23. David Mott March 4, 2011 at 10:50 am # Reply

    'The cost of a house is made up of the price'

    I have been remodeling for many years. The cost of building materials never seems to drop in price similar to what some folks think the final finished product's price should drop to.

    So, the cost in materials is pretty fixed. Labor rates can change of course. Has anyone hired a licensed contractor lately? $25-$60 an hour? They're getting harder to find too.

    Enough about the product (a home) and producing it then. ;)

    What about the lot or acreage or view or neighborhood? That also has a price. This is the main variable in my opinion. If it's a 'hot' market, the place the product (home) is sitting on commands a premium. You can have the exact same home in Arizona or Alabama.

    What I see in the media is 'it's bad everywhere'. People read these articles and then want a fairly priced home (like, you can't buy the lot and build it for that price) at a serious discount. These folks most likely don't own a hammer, if you can catch my drift.

    I see unrealistic expectations from buyers waiting for the bottom and so on. They are waiting for folks to lose years of principal payments on top of serious down payments (of old). These reluctant sellers may have lost their jobs, and for some, all they have left is their home equity nest egg between them and the street. But hey, kick em while they're down! Maybe you can steal their equity and brag to your friends at your cocktail parties. I've already heard a few stories. 'Mankind'... what a misnomer.

    Why doesn't KCM discuss rebuild rates used by the insurance industry? This is a great number to use to get an idea of what a home is actually close to being worth.

    Regards,
    David Mott

  24. mike March 8, 2011 at 10:18 pm # Reply

    The "money lost" by waiting statement is a little misleading. The cost over the "life of a loan" disregards the time value of money entirely, not to mention the mortgage interest deduction. In addition very few people own a home for 30 years anymore. Price does matter as it has a much greater impact on whether you make money or are underwater on resale than the interest rate does.

    Just ask the people who bought at the height of the real estate frenzy if they would rather have had a lower interest rate or a lower price when they bought.
    The "how much payment can you afford" smacks of the car lot sales pitch and is very shortsighted.

  25. Joe Donofrio April 14, 2011 at 10:11 pm # Reply

    Great presentation now I understand how have sooo successful over the years you truly live and breath real estate and you genuinely want the entire united states to understand were the market is going as well thanks for keeping current matters

  26. mike May 17, 2011 at 9:38 am # Reply

    The cost of waiting is now being exposed as interest rates have dropped again and housing prices have continued to go down. One should always be alert to absolute statements. The truth is we never know for sure what the future brings. Generally when someone is making an absolute statement it is based on their own agenda rather than a balanced view of the possible tradeoffs for you the consumer.

  27. Steve Harney May 17, 2011 at 10:20 am # Reply

    @Mike,
    Great points. However, if we do the math, it would still have been less expensive to have bought in November than down. Granted not much less expensive - but less expensive. And that is with prices falling 4.45% since then (according to Caser Shiller Index). The rate has softened in the last several weeks but it was 4.17 in November. And that is not taking into consideration that other mortgage costs have increased dramatically (FHA for instance) or are about to (QRM & Conforming Loan Limits). The original post was about educating the public to the fact that there are other factors that impact a home's cost besides price.
    As far as my agenda, it is quite simple: to help educate the public about their purchase of a home. I commit hours EVERY day on research and putting together a quality post for that reason. Do I lean heavily toward the belief that homeownership is better for most than renting? Yes, I do. I don't hide that fact.

  28. Josh G May 21, 2011 at 10:26 pm # Reply

    Steve, I stumbled on your blog and was not surprised by your position and those of your colleagues. Real estate agents serve one purpose, and that is to promote the sentiment and encourage home owner/sellers that no time is better than now to buy/sell their home. This makes sense since your industry generates exorbitant sums of money on real estate transaction fees. This is no better illustrated the by the NAR's position as "housing cheer leader" leading up to the last minute before the real estate bubble popped. Agents are, as a group hurting now, and now you are trying to crank start the engine again.

    Your illustrations above have no place in reality. If you say that you should buy a home now because rates are low and the same house will cost you more when rates increase, then you are ignoring some basic principles of microeconomics. As the cost of money increases (ie. rates go up) there will be a proportionate downward pressure on home prices. Such that the affordability of the home will remain the same. The best time to purchase a home is when interest rates are high. The purchase price of the home will be historically low and the monthly cost for the same house with remain the same. However, the homeowner in this situation will have an easier time to paying off their home. Additionally they will benefit from future reduction in interest rates which will increase equity in their home should they choose to sell.

    Low interest rates fueled the housing bubble and tremendous housing inflation of the past decade. High interest rates will have an equal and opposite downward pressure on home prices resulting in housing deflation which is always good for the buyer.

    Many of you need to stop drinking the cool-aide since consumers have woken up to the scam.

    • Steve Harney May 22, 2011 at 3:03 am # Reply

      @Josh
      Appreciate your thoughts on the subject. Couple of points:
      1.) There are eight members of the KCM Crew. Only one has ever even held a real estate license. That one is me and I haven't practiced real estate in over 10 years.
      2.) Real estate prices skyrocketed in 2004-2006 well before interest rates fell to current levels.
      3.) Interest rates alone have never determined prices. If that was the case, homes would be selling at historic highs right now. It is true that an interest rate increase could affect the number of buyers who qualify and that could impact demand. Demand is a component in the equation that helps determine price.
      4.) How do you think the expiration of the current Conforming Loan Limits and the QRM proposal will impact a buyer's mortgage costs? We believe they will dramatically affect the cost of a home.

  29. Josh G May 22, 2011 at 8:40 am # Reply

    Responses to your points:
    1. Appreciate the clarification. I was referring more to some of your blog followers who are obviously real estate agents.
    2. Interest rates in 2004-2006 at the height of the bubble was already a near historic lows. Prices skyrocketed until the financial crisis. Fed reduced rates further in hopes to reinflate the economy. This is hard to do with general uneasiness felt though the country, double digit unemployment, lack of easy credit, etc. In other words, the economy as a whole was in shock, and the real estate bubble was the spark.
    3. I agree with you on this point. Interest rates alone do not determine prices. But supply and demand does. However, interest rates have a significant effect on demand tied in to affordability. Housing prices will adjust lower to become more affordable. A house, as with anything, is worth what someone is willing to pay for it. Your premise, "if low interest rates increase demand, current house prices should be at historic highs", is too simplistic. Leading up the the housing crash, speculation had led to an over supply of homes in many markets(inc. supply), double digit unemployment(dec. demand), tight lending standards (dec. demand), foreclosures entering market (inc. supply), and others.
    4. You say it will dramatically affect the cost of a home. I say it will dramatically affect the price of a home.

    • Steve Harney May 22, 2011 at 2:53 pm # Reply

      @Josh G
      1.) No problem. Many think we are real estate practicioners.
      2.) Good points.
      3.) My comment about interest rates and prices was intended to be simplistic-and obviously not correct. That was in answer to your point that "As the cost of money increases (ie. rates go up) there will be a proportionate downward pressure on home prices." To me, that was overly simplistic.
      4.) Again, I don't believe you are seeing our point. Over the next eighteen months, two things will happen:
      a.) supply will decrease as we work through the inventory of distressed properties-the number one pressure on prices
      b.) the cost of financing will increase as the government backs away from their assistance to the housing industry.

      These are the reasons that the KCM Blog, the Wall Street Journal and Fortune Magazine are all saying the same thing: Now is the time to buy.

  30. Josh G May 22, 2011 at 11:27 pm # Reply

    Steve,
    You are way too optimistic. The sluggish growth of the economy, high unemployment, stagnant wages, tight credit and lending standards, etc will not result in a rebound in real estate prices any time soon. I argue collectively these are overwhelming negative forces too great to expect a net positive effect on home prices from low interest rates alone. Additionally not to mention the "shadow inventory" of homes foreclosed but not yet listed and those in the foreclosure process. BofA alone has an estimated 750,000 homes in this category nationwide. Add on the other major banks and you have an enormous amount of distressed inventory that will last quite a while. Foreclosures are arriving on the market at a trickle rate yet still account for a large percentage of current home sales in many regions. Home prices at some point in the future will rise, but not anytime soon. And it is not foolish in my view to rent and sit things out until the economy rebounds since home prices have not seen their bottom yet.

    I follow your logic. But your logic is flawed since you neglect to consider the state of our economy. Saying "its a great time to buy" with such conviction is fool-hearty. You don't have to bear the consequences should your advice prove wrong to those who take you at your word.

    I've enjoyed this verbal joust. Good day.

    • Steve Harney May 22, 2011 at 11:44 pm # Reply

      @Josh,
      I also have enjoyed our conversation. You make excellent points and obviously have done your research. No one has a crystral ball. But, I truly believe that now is really a great time to buy. Some agree with me; others agree with you. Time will tell.

      As far as others bearing the consequence of my advice, I am quite aware of this. My son just closed on his first home - based on my advice.

      Goodnight.

  31. Marya Kinnan June 17, 2011 at 11:52 am # Reply

    Hello there! This is my 1st comment here so I just wanted to give a quick shout out and tell you I genuinely enjoy reading through your posts. Can you suggest any other blogs/websites/forums that go over the same subjects? Thanks!

    • Steve Harney June 17, 2011 at 2:50 pm # Reply

      Hi Mayra,
      Thanks for the kind words. In the right hand column of the blog, is a 'blogroll' which are other blogs we recommend. You can start there. Check out their blogrolls also.

  32. mike June 26, 2011 at 10:11 pm # Reply

    Ran in to another realtor today who immediately went to the "low interest rate" card. While I respect that Steve has a more educated and balanced view of the financial variables than most real estate "professionals" it is amazing that this very large financial transaction is looked at so simplistically (my commission) by the vast majority of folks in the industry. Price does matter and we need to be smarter consumers and rely on better advice than the typical realtor or mortgage broker offers.

    If we lived in our houses for 30 years it would be one thing, but the research clearly shows that most of us don't. If real estate always went up without drops then I might agree that rate trumps price. Intellectual laziness is still laziness and will put the consumer in a bad position. If you are in an area where it is unlikely that prices will rise sharply in the near future (most of the US) then you may well fare very well by waiting. If a 1% interest rate increase makes a house unaffordable to you then I would tell you that you shouldn't be stretching that far at today's interest rate.

  33. Mike August 12, 2011 at 10:34 am # Reply

    A bit of context for the "historical" evidence that an increase in rates won't push prices down. The two most recent time periods that are referenced happened to coincide with government measures that artificially created demand. Much of the fuel for real estate appreciation in the last 30 years has been provided by governmental agencies assuming the risk, thus creating more buyers who had worse credit and put less money down.With the government now vowing (take that with a grain of salt) to back away from the mortgage business we are much more likely to see an increase in borrowing costs drive prices further down.

  34. Mike August 12, 2011 at 3:53 pm # Reply

    Steve, looks like the 30 yr fixed rate was 5.05 when this article was published. Using hindsight you compared that to the absolute low point in November. How about an update with a comparison from when the article was written to what we've seen in recent weeks. The door should swing both ways if offering balanced advice.

    I've seen this article referenced by multiple mortgage and real estate sites. You are enough of an industry veteran to know that it will be used in this fashion. An update that they won't post on their website would distinguish you from the industry folks.

    • Steve Harney August 12, 2011 at 7:15 pm # Reply

      @Mike - I was thinking of taking you up on doing a new blog but, after doing the numbers, little has actually changed when you look at the bottom line.

      Back in November, the median sales price was $170,000 and the Freddie Mac 30 year interest rate was at 4.17%. As we noted in the blog, the mortgage payment would have been $828.36.

      Today, the median price is $184,000 (yes, prices have ticked up) and the Freddie Mac rate is 4.23%. The mortgage payment would be
      $903.02, almost $75 MORE per month.

      A buyer would have waited 10 months only to pay MORE! That was the point of the blog: waiting may not guarantee you a lesser cost.

  35. Mike August 14, 2011 at 11:42 am # Reply

    Steve,

    Fair enough although you are once again measuring from November 2010 rather than February when you published the article. Easy enough to cherry pick the data in hindsight. Anyone who read your article and was convinced it was time to buy did not have the luxury of a time machine so that they could go back to November.

    The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009.

    The national median existing single-family home price was $171,900 in the second quarter, down 2.8 percent from $176,800 in the second quarter of 2010.

    Interest rates at the time you published the article were around 5% and now are around 4.5%. At best I think a reasonable analysis would lead to the conclusion that it has not cost much, if anything, to wait.

    • Steve Harney August 14, 2011 at 1:18 pm # Reply

      @Mike,
      That's my point! People are delaying good family decisions hoping they will save money. They are not saving. They are just putting off their dreams and goals. I am not cherry picking dates. Friday, I will do an InfoGraphic showing the costs for each month for the last 12 months. I have not yet done the research, but I promise to print it no matter what it shows.

  36. Mike August 15, 2011 at 5:06 pm # Reply

    Steve,

    Think we are at a stalemate. The title of the article was "The cost of waiting for prices to fall". Perhaps it should be titled, "The possible cost of waiting for prices to Fall". The industry (not you per se) has always been a cheerleader for "now is the time to buy". Even found an article of the same title from 2007.

    It is reasonable to say that much of the demand that pushed housing prices up over the years came on the heels of government backing of mortgage risk. It remains to be seen what they do this time. Good for you for having this blog and engaging in this discussion. It has provided a balanced viewpoint of the possible tradeoffs in buying vs. waiting.

    • Steve Harney August 15, 2011 at 7:49 pm # Reply

      Thanks for your support, Mike!

      On Friday, I am going to show the P&I for the median priced home each month for the last year in an InfoGraphic. This way we can all see the wisdom of waiting or not waiting.

      • Mike February 17, 2012 at 5:24 pm # Reply

        Well....who would have believed we'd be into 2012 and well under 4% on a 30 year mortgage. Now would be a good time to revisit this article. The biggest surprise is that prices have dropped, but not as much as many forecast. Economic recovery seems to be happening and that will create some demand.

        • Steve Harney February 19, 2012 at 1:11 pm # Reply

          Great point, Mike. I did the comparison. If someone waited and bought this February instead of last February they would have saved over $140/month on their mortgage payment (assuming they could still get a mortgage under the stricker lending requirements). This is more than their increase in rent payment. From a pure financial analysis, waiting would have made sense.

  37. Realtors Are Liars® September 5, 2011 at 9:10 pm # Reply

    So now is the time to buy considering prices are falling and in fact the declines are accelerating?

    You guys need to get honest for once in your life.

    • Steve Harney September 5, 2011 at 11:52 pm # Reply

      @Realtors Are Liars

      The blog you commented on is over six months old. It was 100% accurate for those who waited until then (as the math showed). A more current post you may want to comment on is http://kcmblog.com/2011/08/19/homeownership-why-wait/
      It shows what has happened over the last year.

      P.S. Though we agree prices will soften this winter, prices in the last quarter have actually increased.

  38. kuku666 September 8, 2011 at 4:03 pm # Reply

    Thanks for this post, I am a big fan of this web site would like to keep updated.

  39. Mike from Indianapolis October 27, 2011 at 12:40 pm # Reply

    Absolutely right. The only way to know the market has hit bottom is after the fact, when there is a sustained trend towards higher prices. By this time, of course, the buyer has missed out on the opportunity to buy a rock bottom. Plus, like you said, there is a real danger of mortgage rates rising. On this point alone, there is a case to be made for simply buying on the basis of rate, rather than price. In the end, it is the COST that determine the merits of buying.

  40. Suntasticday1 January 29, 2012 at 9:20 am # Reply

    If prices fall with higher interest rates, then it would be better to wait.  If you're waiting and saving(if you're going to buy a home, you need to be disciplined to save anyways), you'll have a bigger down payment with a lower cost home.  Also, with lower cost home, it'll be easier to pay off your mortgage earlier as well.  Plus, with rising interest rates, the cash that you have on the sideline should get you better interest in the savings account or CD.  
    However, interest rates will only rise with economy picking up so it may be several more years before that happens.

Trackbacks/Pingbacks

  1. Tweets that mention The Cost of Waiting for Prices to Fall -- Topsy.com - February 11, 2011

    [...] This post was mentioned on Twitter by Steve Early, Linda Early, yourmtgpro, Jeff Chalmers, Jeffrey Chalmers and others. Jeffrey Chalmers said: The Cost of Waiting for Prices to Fall - Many purchasers have been sitting on the sidelines waiting for home prices ... http://ht.ly/1bhLMh [...]

  2. The Cost of Waiting for Colorado Home Prices to Fall | Benchmark Mortgage of Colorado - February 12, 2011

    [...] read more, click here for the full article at the KCM Blog. Tags: colorado, homebuyer, interest rates, mortgage, [...]

  3. The TRUE Cost of Waiting | Get Mortgage Wise - February 12, 2011

    [...] cost of waiting was most clearly illustrated in a blog post earlier this week by national real estate expert Steve Harney of Keeping Matters Current. [...]

  4. The Cost of Waiting for Prices to Fall | Realty Executives International - March 21, 2011

    [...] They should be concerned where costs will be later in the year. Reprinted with permission from: http://kcmblog.com/2011/02/11/the-cost-of-waiting-for-prices-to-fall/ This entry was posted in Buyers, Finance and tagged Home prices, interest rates, waiting to buy. [...]

  5. Rental Costs Are About to Takeoff | South Florida Luxury Real Estate | Nancy Batchelor - April 8, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  6. Rental Costs Are About to Takeoff in Gananda NY, 14568? | Gananda Located in Walworth, NY 14568 - April 8, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  7. Rent vs. Buy – Buy, Buy, Buy… « The Core Group - April 10, 2011

    [...] Waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  8. Glenwood Agency » Rental Costs Are About to Take Off - April 13, 2011

    [...] - Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  9. Nothnagle Realtors. Rental Costs Are About to Takeoff in Ontario, NY 14519 by Tony Robusto | Ontario Top Realtor - April 17, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  10. Rental Prices Are About to Blast Off | California Pacific Brokers - April 18, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  11. Rental Costs Are About to Take Off | Lopez Loans - April 19, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  12. Rental Costs Are About to Take Off – DANIEL WALSH - April 20, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  13. Rental Costs Are About to Take Off | BK Home Loans - April 20, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  14. Rental Costs Are About to Take Off | Ryan Niles - Certified Mortgage Planner - April 20, 2011

    [...] sense for several reasons.Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase.Mortgages may soon become much more expensive than they are right now.Owning a home is less [...]

  15. Rental Costs are About to Take Off | THE LOAN CONSULTANT - April 20, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  16. Rental Costs Are About to Take Off | Linh Nguyen - April 20, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  17. Rental Costs Are About to Takeoff in Fairport NY 14450 | fairporthomes - April 21, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  18. Is Now the Time to Invest in Charlotte Real Estate? - April 27, 2011

    [...] high affordability. Affordability refers to cost, not price. As mentioned in Pat Riley’s Blog and Keeping Current Matter’s Blog, the cost of real estate is affected dramatically by the interest rate paid on the mortgage. If you [...]

  19. Rental Costs Are About to Takeoff « Duane's World - May 5, 2011

    [...] Even though prices may still soften, waiting to buy wouldn’t make sense as the cost of owning a home may still increase. [...]

  20. Alabama Rent Busters » Rental Costs Are About to Takeoff - May 5, 2011

    [...] Even though prices may still soften, waiting to buy wouldn’t make sense as the cost of owning a home may still increase. [...]

  21. Right Now is the Perfect Time to Buy! | LoanSouth News - May 6, 2011

    [...] Even though prices may still soften, waiting to buy wouldn’t make sense as the cost of owning a home may still increase. [...]

  22. Rental Costs Are About to Takeoff Reasons NOW Is a Great Time to Buy | Long Beach Agent Success - 562-961-1400 - May 6, 2011

    [...] Even though prices may still soften, waiting to buy wouldn’t make sense as the cost of owning a home may still increase. [...]

  23. Rental Costs Are About to Takeoff – Another reason NOW is a Great Time To Buy. « The Rowe Report - May 6, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  24. Seattle Real Estate Tip | The Cobbin Group - May 6, 2011

    [...] Even though prices may still soften, waiting to buy wouldn’t make sense as the cost of owning a home may still increase. * Mortgages may soon become much more expensive than they are right now. * Owning a home is less [...]

  25. Rental Costs Are About to Takeoff « The D Blog - May 10, 2011

    [...] Even though prices may still soften, waiting to buy wouldn’t make sense as the cost of owning a home may still increase. [...]

  26. Rental Costs Are About to Takeoff | Match Point 40 - May 11, 2011

    [...] Even though prices may still soften, waiting to buy wouldn’t make sense as the cost of owning a home may still increase. [...]

  27. Rental Costs are About to Take Off | John Nichols - May 20, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  28. Rental Costs About to Take Off | Craig Ronning - May 20, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  29. The Cost of Waiting for Prices to Fall - May 20, 2011

    [...] http://kcmblog.com/2011/02/11/the-cost-of-waiting-for-prices-to-fall/ [...]

  30. Rental Costs Are About to Takeoff - May 28, 2011

    [...] sense for several reasons.Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase.Mortgages may soon become much more expensive than they are right now.Owning a home is less [...]

  31. Rental Costs About to Take Off - June 23, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  32. Rental Costs About to Take Off | Alisha Carr - June 23, 2011

    [...] Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase. [...]

  33. Think Waiting for Prices to Fall is a Good Idea? Think Again… | Complete Peace Of Mind - July 13, 2011

    [...] (to view the entire article on The KCM Blog, click here) [...]

  34. Price Reductions « Washington Park Daily Homes - July 15, 2011

    [...] Here’s more info on how much its costing you to sit on the fence. The Cost of Waiting to Buy [...]

  35. The Cost of Waiting for Prices to Fall | The Villages - January 16, 2012

    [...] They should be concerned where costs will be later in the year. Reprinted with permission from: http://kcmblog.com/2011/02/11/the-cost-of-waiting-for-prices-to-fall/ This entry was posted in Buyers, Finance. Bookmark the permalink. ← 4 Financial Reasons [...]

  36. Think Waiting for Prices to Fall is a Good Idea? Think Again… - January 19, 2012

    [...] (to view the entire article on The KCM Blog, click here) [...]

  37. Is Now the Time to Invest in Charlotte Real Estate? « Allen Tate Newsroom - August 2, 2012

    [...] affordability. Affordability refers to cost, not price. As mentioned in Pat Riley’s Blog and Keeping Current Matter’s Blog, the cost of real estate is affected dramatically by the interest rate paid on the mortgage. If you [...]

  38. The Cost of Waiting for Prices to Fall - September 12, 2012

    [...] article is being reposted from The KCM Crew and originally appeared on February 11, [...]

Leave a Reply