More thoughts on why now might NOT be a good time to buy a home (5-28-09 UPDATE)

Check out Patrick Killelea’s site on housing.

From the above link, here’s something to think about regarding low interest rates (and why Patrick claims they make for a BAD time to buy):

It’s a terrible time to buy when interest rates are low, like now. Realtors just lie without shame about this fundamental fact. Prices fall as interest rates rise, because a given monthly payment covers a smaller mortgage at a higher interest rate. Since interest rates have nowhere to go but up, prices have nowhere to go but down. The way to win the game is to have cash on hand to buy outright at a low price when others cannot borrow very much because of high interest rates. To buy at a time of very low interest rates is a mistake.It is definitely far better to pay a low price with a high interest rate than a high price with a low interest rate, even if the mortgage payment is the same either way.

  • First of all, your property taxes will be lower with a low purchase price.
  • Second, a low price gives you the ability to pay it all off instead of being a debt-slave forever.
  • Third, prices will definitely fall as interest rates rise — so paying a high price may trap you “under water”. Then you will not be able to refinance, and won’t be able to sell without a loss. Even if you get a long-term fixed rate mortgage, when rates inevitably go up the value of your property will go down. A low price minimizes this possibility.”

It’s an interesting counterpoint that I hadn’t heard before.  Thanks to me new favorite financial blogger, Ramit Sethi.  You can read some other things on homebuying from Ramit HERE.  Ramit has a very entertaining, information and candid take on personal finance.  I highly recommend his blog (and I’ve been reading it voraciously for the past couple weeks since I discovered it.)

Hopefully it will inspire me to post some more to mine, as I’ve been neglecting the ol’ blog for a while…

UPDATE: Another good link on things to think about (financially) when considering buying a house.

Also, here’s a counterpoint article that initially disputes Patrick’s claim that when interest rates rise, housing prices must fall, but then gives some rationale for why Patrick’s belief may be correct.

Author: Ward Williams

Ward is an independent financial advisor at Better Tomorrow Financial. He started working as an independent investment advisor in 2009.

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