Wednesday, December 30, 2009
Are homes cheap now? Relative to what?
This is an excellent article, and a good reminder, by Calculated Risk that is titled "Are homes now cheap" that describes the trap for buyers today who have a short to mid-term holding time frame. In this article, he shows that the purchase today of a home with a 5%, 30 year mortgage, would allow the buyer to have a mortgage of $186,282 with a monthly p&i of $1,000. The buyer plans to sell this property in seven years and expects mortgage rates to be 7% at that time. The new buyer has the same $1,000 payment in mind and finds that with interest rates now at 7% the maximum mortgage amount is only $150,308. For this property to sell in seven years something will have to change. Unless the employment rate improves a lot from today, it will be the sale price that most likely gets the change, to a lower amount. Be careful out there.