House Prices - when does it make sense to buy?

Fitch: Housing Prices Have 10% to Go Before Stabilizing

“Fitch’s analysis shows that the 29% rise in prices realized between 2004 and 2006 … has been reversed. With prices returning to early 2004 levels, Fitch believes that most of the additional 10% decline … will occur over the next eighteen months. Fitch then expects declines thereafter to moderate

via Calculated Risk: Fitch: House Prices to Fall 10% over next 18 months

Okay, if that in deed is accurate, then I’m going to “tweak” my 7 year plan a bit.   Let me lay out my thoughts:

1. It’s going to take approximately 7% to sell the house (6% brokers fees plus other assorted costs).

2. If you buy a house today and the house price drops 10% in the next 18 months.

3. And then things are flat for 2 years before we start seeing 2 to 3% per year appreciation.

Then that means that you’d be looking at approximately 8 to 10 years from now until when you’d “break even.”

So, from that standpoint, I’d recommend that you not buy a new house unless  you are planning on it as an 8 to 10 year plan.

Now to throw another item in the mix…..

If you wait 1 year and can buy a house for cheaper but rates go up 1%, do you win or do you lose?

The math says that a 10% drop in prices vs. a 1% jump in interest rates works out to be pretty much a ‘break even’ in terms of carrying costs.   However the equity build up by buying now is greater than it is by waiting a year.  (Approximately $4,000 over the 10 year time frame.)

So is now a good time to buy a house?   Under the right circumstances and with the right financial analysis, it could be.

Call me at (616) 292-7559 or e-mail me at Straight Talk and we can talk about it further.

Tom Vanderwell