Lennox's Real Estate Blog

sharing my passion for real estate

Should I Stay Or Should I Go? Trying To Time The Market

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In my travels around the region, one question I hear over and over again from people is, “Should I buy now or wait till later?” It’s a great question to ask in the face of some of the lowest interest rates we’ve seen in recorded history. But, it’s a tough question to answer within the context of today’s market because conditions vary greatly from one price range to the next. In the absence of a crystal ball, I will do my best to explain how I see the market and what buyers might want to consider as they plan their next move.

More affordable prices:
This is the part of the market where homes are priced at or below the median price in a given area. For example, in Seattle that number stands at about $360,000. In Bellingham and Portland the median home price is about $240,000. For those thinking about buying in the ‘more affordable’ market, the most important thing to keep in mind is Buyer Purchasing Power. Most economists agree that interest rates are as low as they’ll go, but many of them disagree about when they’ll start to rise. The economic events in Europe helped keep U.S. interest rates at their current lows longer than originally expected, but as a result, they now represent the wild card. As a buyer who is trying to time a purchase in the ‘more affordable’ market, it’s important to understand that a 1% rise in interest rates equates to about 10% less purchasing power. Prices in this market are expected to remain relatively stable, but even a moderate drop in prices will not make up for the lost purchase power when interest rates rise. So, my advice to these buyers is that if you’re in a good position to make your move, this is a great time to check out your options.

Above the mid price point:
The next level of prices represents the middle of the pack. Conditions in this segment of the market differ somewhat from the ‘more affordable’ price ranges. Prices above the ‘mid price’ point may adjust down by about 5% over the next year. If interest rates only go up half a point during this time, it’s a wash as to when it makes most sense to buy economically. But, if they go up a full point, as many economists are predicting, that’s a 10% drop in purchasing power. On a $500,000 house, that’s $50,000 less purchasing power. If you factor in the 5% decline in home values, it adjusts to a $25,000 loss in purchasing power. If I were a motivated buyer in this market and in a good position to buy, I would shoot for sometime this summer.

Upper price ranges:
Those homes at the top of the price pyramid almost always have a set of conditions unto themselves. That’s because there are fewer qualified buyers which results in less sales. This segment of the market could see a downward adjustment in home prices of about 10% over the next year. However, as mentioned before, economists think that interest rates will rise by one point over the next 12 months, which equates to about a 10% loss in purchasing power. What this means is that if you buy a home today or if you wait six-to-twelve months from now, affordability will be about the same. If you have a home to sell in this market as well and you’re concerned about it losing value, remember that when you buy and sell within the same market timing, the next home you buy will also have adjusted down in price, so in theory, you shouldn’t leave any money on the table.

Cash buyers:
These buyers can afford to pay cash for their next home and therefore are not reliant upon interest rates. As a result, purchasing power doesn’t apply to this small segment of the market. Cash buyers usually buy in the ‘upper end’ market which means that prices are the most important factor to this group. As mentioned before, prices in the ‘upper end’ could adjust downward by 10% during the next year, so homes should only get more affordable to those not tied to the mortgage market. We also expect to see increased inventory levels which mean more homes to choose from. So, if you’re a cash buyer and you find your dream home tomorrow, make an offer, but if you decide to wait, market conditions should continue to improve over the next year.

Ultimately, buying a home is about far more than just timing the housing market. It’s a major decision made up of many factors, of which market timing is just one. And in the process of buying a home, it’s important to be well informed about everything that impacts this life changing experience.

As always, thanks for reading.


Written by Lennox

June 3, 2010 at 1:44 pm

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