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We have all seen the media reports of how the real estate market has been down in the dumps for years now. But at the same time, we also see reports of how this is an excellent time to buy a house, whether as a first-time buyer or an existing homeowner looking to upgrade into a newer, bigger or better place. To help illustrate how this can be true, despite the unstable real estate market, here is a simple equation with three parts:
SALE OF THE EXISTING HOME, PURCHASE OF A NEW HOME, INTEREST RATES
SALE OF THE EXISTING HOME, PURCHASE OF A NEW HOME, INTEREST RATES
Selling The Home You Are Living In Now
Basically, you have two choices if you are thinking of selling your property – either do it now or do it later. Selling it now would mean that you would suffer the loss of the last ten years’ worth of value downgrade. For the last decade or so, home values have steadily dropped, to an average of about 10% less than what they were before. So assuming a $200,000 home in this equation, consider the next level.
Buying A Bigger and Better Home
A reasonable upgrade to a home that, say, has a list price of $350,000 is an exciting prospect especially since its value just five years ago would be about $420,000. Not only would you be buying more house, with the average square foot costing far less than it would have just a few years ago, but a few years down the line when the real estate doom starts to rebound, you will be sitting in a house that is worth much more than you purchased it for. How is that possible? The third part of our equation is how that is possible.
Financing On Super Low Interest Rates
There is hype all over the place about the historically low interest rates we have been seeing on the market for quite some time now. This will not last – but while it does, the 30-year fixed rate mortgages that are available these days [to qualified buyers] are as low as 4.5%. This is almost unprecedented and coupled with the buyers’ market that it is with the inventory levels we are seeing, this is quite simply the best time to buy and at the best rates.
Why Buy Now Instead of Waiting For Later?
Given the three parts to our equation, the question many homeowners ask is now or later. To answer this, here is a simple chart that demonstrates what would happen if you sold your home now vs. later and if you bought a new upgraded home now or later – both scenarios taking into consideration the changing values of property.
Existing Home New Home Interest Rate Difference Saved
Upgrade Now $200,000 $350,000 4.5% $15,000
Upgrade Later $220,000 $385,000 6.5% -
To explain this further,
Assume your home value goes up 10%, from $200,000 to $220,000.
But the new home you purchase would also increase in value, putting the original value of $350,000 at $385,000 in just a few years. An important consideration is that the higher the mortgage, the higher your interest rate, (in other words loan amount conforming to conventional rates has gone down) which will affect you as time goes by and the current opportunities will no longer be there to avail. The new interest rate that would go along with inflation would be an expected 6.5%, meaning that money for your mortgage would cost you more.
Keeping all these factors in mind, it is clear why now is the best time ever to be selling your home and upgrading into a new home. The money saved is a sizable chunk of a down payment for many homebuyers. In this example, about $15,000 is the amount saved and the best part is that the super low mortgage rate gets locked in for thirty years.
When you work out the numbers in the long run it is clear that availing the opportunity out there now is the perfect solution to owing the best possible home in the future.
