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If Your Goal Is to Buy Low, Buy Now!

There is a very famous saying which asserts “Sell High, Buy Low”. It is obviously great advice no matter what the investment. Below is a graph showing the cycle of investments. It shows the points of maximum risk and maximum opportunity when purchasing. We want to sell high (point of maximum risk) and buy low (point of maximum opportunity).

The challenge is how to determine when we have hit bottom if you are a purchaser. The only time you can guarantee a bottom is after you pass it.

However, there is more and more evidence that the COST of a home has in fact hit bottom. Notice we have used the word COST. Unless you are an all cash buyer, you must take into consideration the expense of financing a property to determine the true cost of purchasing the home. Interest rates have increased over the last quarter; and the rise in rates has counteracted any fall in prices.

Let’s look at an example:

Let’s say you were going to take out a $200,000 30-year-fixed-rate mortgage in November of 2010. At that time, interest rates were 4.17% (as per Freddie Mac). Your principle and interest payment would have come to $974.54. According to the most recent report from Case Shiller house prices fell 3.9% in the 4th quarter of 2010. The most recent report from the Federal Housing Finance Agency shows a 0.8% fall in prices. Let’s use the larger percentage decrease: 3.9%.

For the sake of keeping the math simple, we will now say you can get the same house with a $192,000 mortgage (4% discount from November price). Interest rates are now 4.95% (as per Freddie Mac).

Your principle and interest payment would now be $1,024.84.

By waiting to pay less for the PRICE of the house, the COST increased over $50 a month. That adds up to more than $600 a year and over $18,000 over the life of the loan.

We realize that there are other things to consider (ex. the mortgage tax deduction, etc.). This example is just a simple way to show that there is a difference between COST and PRICE.

Bottom Line

If you want to buy low, buy now. It appears COST has hit its lowest point.

Attention Real Estate Professionals:

The above graph can help you communicate today’s market reality with your buyer clients. Click here to find out how you can download other charts, graphs, and visuals like this to include in your Buyer & Listing Conversation Manuals today.

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34 replies
  1. Allan Rosen
    Allan Rosen says:

    Oh please!!!! There is no recovery and nothing to suggest that we are at the bottom. It is true that interest rates may rise, but something must be done with the 4 houses that were taken back for every one sold in S. Fla last year. This sounds familiar as when agents stated “buy now or be priced our forever”. I didn’t buy the BS at that time and I’m not buying it now either. This comes across as a desperate cry to snag more buyers. In my case I will buy, but only when I feel I am buying solidly way UNDER the so called market price. Should we trust the banks and real estate sales organizations? NOT ON YOUR LIFE!!!!!

  2. Betty Hays
    Betty Hays says:

    I agree with Steve’s reasoning. Our home prices continue to fall. I do not have a crystal ball but in our area with high unemployment and more foreclosures yet to come on the market it seems inevitable. We don’t know when the bottom will hit, but interest rates will surely edge up.

  3. Michael Levin
    Michael Levin says:

    Allan…you say interest rates MAY rise? Apparently you are not as current as you would like one to believe. Interest rates have risen and continue to do so. And of course there is a possibility that we may have another “bottom,” but what the writer is simply pointing out here is that prices are going UP. I am a Realtor in the DC Metro area and our inventory is very low, causing an increase in home values. South FL is a different market entirely. So perhaps you should consider the fact the South FL is not indicative of the real estate market in general. And for what’s it worth…no one is telling YOU to buy. The writer is simply stating the obvious that current market trends are indicating an increase. This could change down the road, but since no one has a crystal ball, Realtors can only speak on what is CURRENTLY happening. It would perhaps be in good taste for you to refrain from insulting Realtors as a whole when you clearly are not an authority on the subject.

  4. Allan Rosen
    Allan Rosen says:


    You sound like a typical agent. There is nothing in the economy to drive prices up except perhaps in your little community. Every agent says that NOW is the time to buy; it’s always the right time to buy. Agents like yourself engage in wishful thinking. I would suggest your educate yourself buy reading patrick.net. I would also suggest that your industry, along with banks, and our government is totally corrupt and not to be trusted. And yes Micheal, agents deserve to be insulted for pushing people to buy houses they couldn’t afford with their miserable greed. Fortunately I did not. I never claimed to be an authority on real estate, but I also not dumb enough to listen to someone like you.

  5. Paul Tudor Jones
    Paul Tudor Jones says:

    ALLAN ROSEN – you sir, have an opinion on the market and its direction for many reasons, but it DOES NOT MATTER! If you derive a full time income from real estate what matters is being able to serve both buyers and sellers and put food on the table. This chart and article provide exactly the information needed to help serve a buyer.

    This is the reason KCM exists, to provide current information to help Realtors meet the needs of clients, wether BUYING or SELLING. There is always two sides to every story the + – you Allan have the wrong focus.

    Of course we cant ignore the reality of the economic conditions and the lies being told by those in the public arena, these are nesseccary to include in a overall macro view of the real estate market, but speculating/fear mongering has no place when advising clients.

    1)Can prices go lower? Yes. 2)Can interest rates go lower? NO (based on empirical data) The COST of borrowing will increase with time, even if prices continue to decline. If you understand math and mortgages you would know that its never about the price its all about the cost.

    There may not be a “recovery” or “hit bottom” yet, but I focus on the positve and create the same enviroment for my clients and its going great!

  6. MikeRyanJr.com
    MikeRyanJr.com says:

    Allan: Not all of us agents, lenders, etc. are bad people. What caused the housing crisis is greed pure and simple. And not just on the part of lenders & agents but the buyers who bought with dollar signs in their eyes, regardless of the advice some of us gave them. They had to keep up with the “Joneses”. When people come to me wanting to buy, my first question is are you planning to live in the home 5-7 years? If not rent. With the Partick.net website, what I read is now is a terrible time to buy an expensive house…not homes in general. In many areas of the US including Florida it’s now cheaper to buy than rent (also discussed on that page). And in some areas it won’t matter if prices never go up because the cash flow is unbelievable. We just bought a home here in Richmond for $6,000, yes six thousand dollars, and have it rented for $725. I say thank God for the bad market and let it stay this way for a long time while smart people snag up the deals. People get up at 4 am to get a “deal” on a LCD TV at Wal-Mart come Black Friday. Those same people are too stupid to snag a foreclosure for pennies on the dollar that will generate cash for the rest of their lives. They run back to their rental and watch the TV in a place that costs them more to live in than if they bought. Too bad.

  7. Michael Levin
    Michael Levin says:

    Well Allan, if our government, industry, banks, etc…are so corrupt and terrible, perhaps you should move to another country. Clearly you are too intelligent and enlightened to live in a country full of dumb people. ;)

  8. Key
    Key says:

    Your chart also suggest that tracking the emotions of the group will lead to contrarion behavior – so can you predict the top of the next market? 2015?

    It is a lovely chart as a Marketing Tool but it is not predictive in the least… States are laying off, or planning to curtail Government Workers – do you think that will lead to more or less foreclosures?

  9. Brad
    Brad says:

    Allan’s first comment isn’t so wrong, and what micheal said wasn’t so wrong either. Not everywhere is good, and not everywhere is horrible…but this article made a general statement, that isn’t correct an is misleading. So clean up the article and lets see what happens

  10. Anne Webster
    Anne Webster says:

    God Bless the USA where we can state our opinions and agree to disagree! I believe the real estate market is based on individual needs and opportunities which is why all real estate is local. It is best to consult a trusted person in the market place that understands what is selling, who is selling and where the opportunities lay waiting.

  11. Edie Carlson
    Edie Carlson says:

    Allan…you write as though it’s your mission in life to bring hostility to what would otherwise be civilized dialogue. Why that’s your mission only you know. Your message is one of anger that doesn’t bring any clarity to the discussion. Fun, isn’t it?

    The statement, “a desperate cry to snag more buyers,” makes me laugh…actually it makes me want to howl! What drama! Call it what you will: “snagging,” “attracting,” “convincing,” “educating,” or “encouraging.” There ARE buyers in the market and, if they can qualify for a mortgage under the current guidelines, I want as many as I can serve well. Your insults are just silly.

  12. Brad
    Brad says:

    Great comment Anne…consult a trusted person. Perfect

    MR Jr…you’re so smart and everyone else is stupid….hmmmm. If people are so stupid, then maybe you’re not son good at explaining the “you can’t lose” buying this crap. Or maybe you’re keeping it all to yourself? And if it’s so great, then why don’t you own a hundred foreclosures?

  13. MikeRyanJr.com
    MikeRyanJr.com says:

    Me & my clients own a bunch of ’em! And it’s a “win-win” deal. At the end of the day real estate is a people business. If you treat people like people they treat you like a person too. If you’re a slum lord that never improves a property, treat people like a dog and only see them as a rent check, well you get what you deserve. Ditto for Realtors and lenders that only see a comission check. And thank God for America…where you can also stand in line at Wal-Mart and buy a bunch of Chinese imported crap with your credit card that only goes down in value. By the way Brad, I did make a mistake. Most people are not really stupid (although I am not getting up at 4 am to buy a TV this Thanksgiving Holiday). The problem is most people lack courage. If you are willing to work and take a risk you can make a pile of money in real estate and also help people along the way. But you have to be willing to turn off the TV, get off the sofa and have courage. Like everything in life, it’s simple but it ain’t easy! “Do not let fear be your guide”. There are plenty of deals out there and in your neighborhood right this very moment. If you are not greedy, like dealing with people, are somewhat handy and have courage you will prosper in this market. And you can prosper alot of other people along the way who need work so they can put food on their table.

  14. Victor
    Victor says:

    I so agree with Edie- there are people in the market right now who have to buy a house for whatever compelling reason and we have buyers who are looking for investment opportunities which are readily available in all markets. I too will work with whomever I can so I can continue to make a living. And I will ensure that my buyer gets the best deal/pricing possible. Seems like Allan would have us all close up shop and go home. Tell us Allan, how will those who need a home buy one?

  15. Steve Harney
    Steve Harney says:

    Ladies & Gentllemen,
    Let’s keep the comments to the points of the blog, not personal attacks on others. The points of the blog post:
    1.) In any investment, you hope you can sell high and buy low.
    2.) In real estate, COST is more important than PRICE unless you are an all-cash buyer.
    3.) With interest rates rising, the COST of buying a home may increase even if prices decrease.

  16. Pam Hardee
    Pam Hardee says:

    How do I “share” to my Pam Theriault Hardee – Allen Tate Realtor
    FB page because when I try to share it opens my personal page and that is not what I want. Suggestions would be appreciated. There doesn’t seem to be a place where I can choose which FB profile I want it to go to.

    Thank you!

  17. Liz
    Liz says:

    I think Steve’s point is correct. The COST of a home is not the same as the PRICE of a home. The most obvious point I see proved throughout this debate is that real estate markets are LOCAL just as Anne wrote. Consult a trusted professional. If you would like to check the LOCAL conditions in State College, PA, I suggest you visit http://www.1kbb.com and click the LOCAL Market icon. It’s updated weekly with a snapshot of the market and more information is available by calling any of our offices.

  18. Phil Osborne
    Phil Osborne says:

    Knowing Steve his approach on things comes from a National perspective and he is probably the leading authority on the subject as most of his time is spent studying real estate trends and speaking across the country. There are numerous bloggers and so called ‘economists’ out there who are not worth much listening to or following, but Steve does his homework and then some. With that said every real estate market is local and as many others have posted here you should consult a local expert who has the pulse of the community. Steve has done nothing but encourage Realtors to become experts and not simply salespersons and many of us are only in business because we have taken that advice and become more knowledgeable.

  19. Jim Flanagan
    Jim Flanagan says:

    Interesting! I observed much of the same “ranting” in the comments on the the WALL STREET JOURNAL post; http://finance.yahoo.com/real-estate/article/112211/why-2011-may-be-end-of-housing-crashBookmark

    This was my reaction to those, and some of these, comments:

    So, why then, is it so difficult to believe the “end” of the housing crash may be near? Perhaps it is because many of these “commenters” suffered some sort of financial setback as a result of the “Housing Bubble” or just because of the economy in general? Or is it just too easy for anyone with a computer and too much time on their hands to “comment” on anything and everything?
    So as not to be lumped in with the latter, I’ll let the local real estate market speak for itself; http://charts.altosresearch.com/altos/app?pai=53019454&z=nj-ocean-county-5165637&service=zrchart&rt=sf&ra=c&q=a&s=market_action&ts=e&sz=i

    Oh, and thanks again, Steve, I re-posted this on our company site!


  20. Bob Dohn
    Bob Dohn says:

    It appears that some may have missed the point of the KCM article, which was simply to point out that the price of a home is not the only component of the overall cost of ownership. While home values still continue to be soft or declining in many markets, the cost of financing those homes is on a generally upward trajectory. Recent government signals that it intends to be less of a force in home financing will likely accelerate that process. If one is thinking about buying a home, consideration should be given to the fact that rising interest rates will offset any possible future erosion in value at least to some degree, if not entirely.

    Consideration should also be given to the fact that, while these are not “tea and roses” times, the overall economic trend is moderately positive. By an overwhelming majority, Americans still see value in home ownership, which means the demand is out there and it’s just a question of time before housing markets stabilize and equity gains begin to return. The only item open to debate is how long that will take. While there are plenty of opinions on that question, the majority of experts seem to feel that, barring any unforeseen turn of events, some degree of stabilization will occur within the next year.

    As to whether the glass is half empty or half full, that depends on your overall view of life, I guess.

  21. The KCM Crew
    The KCM Crew says:


    We have noticed that many people are having the same problem that you are having. However, there doesn’t seem to be a solution for it yet. Even if you click “Use Facebook as Page” it will direct you back to your personal account once you try to click on a Facebook share button. However, you can do it for now by just copying and pasting the URL directly onto your page. Click on this link (http://www.facebook.com/topic.php?uid=115463795461&topic=12617) to check out a forum on Facebook about people discussing this very issue. That way, when they do find a solution to it, it will probably be answered there.

  22. brad
    brad says:

    Jim, people are venting because they lost a fortune, and in some cases everything they have ever worked for. And if the NARs numbers are off anywhere close as CoreLogic points out, then we are no where close to getting out of this mess, and anyone who bought a home in the past 3 years, made a huge mistake. Your chart looks like the ekg I just had…it proves nothing.

    Bob, the headline of the post is the problem, and maybe should have been worded differently, because it is misleading. Furthermore, the examples given are nothing more than simplistic comparisons that my son worked on the first day in 5th grade math class. If the decision to buy a home were only so simple.

    I understand the need for keeping it simple here, but this is a far more complex problem.

    With all due respect, I wish the writers were more in tune with the realities of what consumers have gone through during the past 3 years, and refrain from trivializing such complex matters, which end up making us look foolish in the eyes of the public, as what happened in the WSJ article and comments. Show them and us that you “feel their pain” and maybe they’ll start respecting us more. We need all the help we can get

    • Steve Harney
      Steve Harney says:


      I appreciate your passion. However, we work hard to do exactly what you are complaining we do – simplify a market that is extremely difficult to understand. We are proud of the fact we do that. If you want to add value to the discussion stop talking in generalities and using insulting statements. It only makes it more difficult to hear your message. I have asked on several occasions for you to use one article, graph or study to back up some of your claims.

      We realize many have suffered in the last several years. That is why we started this blog in the first place. To give the best information we can so people could make better informed decisions. If you want to help, bring intelligent discourse to this space or perhaps even start your own blog.

      I am not trying to be difficult. Just trying to keep the debate on course.

  23. Fernando Quesada
    Fernando Quesada says:

    I must say that regardless how adamant a buyer may feel about not buying a house during these tough economic times, you must be missing the point and perhaps you should do the math. Numbers speaks for themselves. You are better off buying a house than renting. If you have a steady income, you should buy a home. Taxes and interest rates are tax deductible. Homeownership = perks.

  24. steve
    steve says:

    I realize the need to keep a blog post short, but when discussing something so complex, there’s a need for something more, so to be fair to consumers, and too point out the varying factors associated with the examples. A mass market approach to this post doesn’t provide for differences in local or regional market condition. To just say that the math at this exact point in time is clear that it’s cheaper, has little if nothing to do with the reason to purchase a home at this time…and buyers have proven that out given the record low rates and equally low sales volume. Conversely would you create a post when the rates were dropping…to not buy a home until you see where the bottom is, or to not purchase a home until the dust settles?

    If buyers are stupid to by into such generalities, isn’t it our duty to educate them so they don’t make a major mistake…again? I agree with you…”tell people the truth and trust their intelligence”…but I add “the whole truth and nothing but the truth”. It should be a no spin zone Steve.

    And yes, there are people in my office who agree with my line of thinking, or is it that I agree with theirs, and who write you as well. We look at the biz from the consumers point of view, not the agents. We also have another dozen agent here who have the same mindset, but luckily they don’t like to blog. We have a thing where we pass around a few ipads and make comments on various sites, and we try to keep it Steve writing as Steve, but we have caught a few pranksters at times. Hey, we’re a bunch of young guys with heavy business backgrounds, who have a lot of energy to burn…and yes we have fun. However, we do take our business very seriously, as you do, but because of our demographics, we have a different way of looking at things.

    Lastly, my wife saw the chart on this post, and said it looked like her view of the weekend she just spent alone with me:). I’m hoping she stopped at hope, and not depression…lol!

    • Steve Harney
      Steve Harney says:

      @ Steve and all his ‘friends’

      The blog post said three things:

      1.) In any investnment, it is good to sell high and buy low. I assume that there is no disagreement with this point.

      2.) When buying any item where financing is involved, COST should be more important than PRICE to the purchaser. This is simple math and I’m sure you agree with this also.

      3.) In a real estate market with rising interest rates, buying sooner may make more sense than waiting. The only two arguements to be made here are:
      A.) Interest rates will fall to almost 4% again.
      B.) Prices will fall so dramatically that an increase in interest rates doesn’t matter.

      There is nothing else to comment on regarding the blog. If you and your friends with a ‘heavy business background’ want to argue point A or B, fine. Make your point with facts, figures, reports and studies.

  25. Jeanne
    Jeanne says:

    Steve Harney gives us the facts with charts and graphs, which indicates that the proof is in the pudding. I think the point is here about being the bottom is that there is a ton of homes on the maket and more shadow inventory (forclosures) coming on the market now and up until 30 months; hence supply and demand. When interest rates start to creep up, which they already have then you have to look the COST of purchasing and what you can afford as a mortgage when you factor in the interest rate. Its a matter of doing the math, so get out your calculator if you plan to buy now!

  26. Josette Skilling
    Josette Skilling says:

    Consumer math seems to be at issue here. Most people I find focus on a single number and not the whole picture: the rate, the price, first time homebuyer credits, the commission. I try to get this message across all the time to folks that in fact their ability to pay for a home swings greatly based on rates they’ll be paying on for 30 years. Until they experience the loss in buying power of a 1% rise in rates, they simply don’t understand the correlation and focus solely on a number they want to pay.

    Now is a great time to buy. If you need a roof over your head, can afford the mortgage and don’t make plans to use the house as a piggy bank, there are many opportunities in every market for good homes. If you cannot trust that the future won’t bring more doom upon us, then rent. Someone will gladly take your monthly payment. Both scenarios benefit the economy.

    Ken, I think the post was spot on. I’d like you to expand on this a bit more as well in a future post. I’m sure you’ve talked before but it bears repeating that buyers who focus on the incentives (rebates, homebuyer credits, etc.) to the exclusion of the overall cost of the ownership make the same mistakes.

  27. Debra
    Debra says:

    Once law catches up with corrupt banking practices, I believe we will not see as many people poising their homes. And I think Chris christy is on a good track to restoring economy in our beloved Jersey shore!

  28. Heather
    Heather says:

    I’m a realtor in the Pacific NW (Eugene, Oregon).. Locally, I think we’ve hit or come close to a bottom in the lower end / starter homes. But I don’t think the luxury homes here locally have found a bottom or know what one looks like. http://bit.ly/hXgGr6 … And when we do find a bottom, although like everyone else I don’t own a crystal ball, I can’t foresee appreciation coming any time soon.. Rates have no where go but up, and increasing rates will apply downward pressure on a home and it’s appreciation. I still believe there are good reasons to own a home: Low rates, affordable values, hedge against rent hikes, plan to live rent free in 15 years, master of domain, etc.. – I just don’t think appreciating investment fits in the category of home ownership.. Not for a while.


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