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Best mortgage rates increase--is now time to buy?

Posted by  on Jun 11, 2012
 

Has the housing market hit bottom yet or not?

It depends who you ask. One of the optimists is Bill Ackman, founder and CEO of hedge fund Pershing Square Capital Management. In a recent presentation called "How To Make A Fortune," he listed several reasons why now is the right time to invest in real estate.

  • Home prices low, sellers under pressure
  • Adundance of selection
  • Great financing available at low rates means affordability is very high
  • Excellent long-term prospects--oversupply of homes will decline: home construction at historic lows.
  • Real estate investment is out of favor--best time to buy

In addition, billionaire investor Warren Buffett gave similar reasons when he predicted that the real estate slump would end sometine in 2011.

But it's not all roses and puppy dogs according to other analysts like Rick Sharga, a senior vice president at RealtyTrac. He told The Wall Street Journal that foreclosures for 2011 could exceed this year's estimated 1.2 million, and that home prices nationally could still fall by about 5 percent. Still others say they could drop as much as 10 percent.

Here's why it doesn't matter.

Whether you think house prices will fall 0 percent, 5 percent, or 10 percent before this is all over matters less than what you think will happen to mortgage rates. That's because a relatively small increase in interest rate can offset a rather large decrease in home price. Getting the best mortgage rates is more inportant than getting the lowest price for your home. Take a look:


Today
5 percent less 10 percent less
Home Price $300,000 $285,000 $270,000
4 percent Payment $1,432.25 $1,360.63 $1,289.02
5 percent Payment $1,610.46 $1,529.94 $1,449.42
6 percent Payment $1,798.65 $1,708.72

$1,618.79

Here is a $300,000 home that to keep thing simple we'll say is being 100 percent financed. Check out what you pay if the price of housing goes down and mortgage rates stay the same, if the price of housing stays the same but rates increase, and if the price goes down and rates increase. Then decide what you think is most likely to happen.

The only reason to put off buying a home is if you think that the price of housing is going to drop and rates will not increase. But if that isn't what you think, you have a limited time to get off the fence.

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