Sitting on the fence...don't get caught by interest rate increases!

By
Real Estate Agent with Century 21 New Millennium DC-SP98366576

humptySo, you are sitting back waiting on those prices to fall even further. I understand. After all, it is rather safe on the fence.

The problem you have while sitting there, watching prices, is that the cold wind of interest rate increases is on the horizon. Just like "the hawk" that brings the chill to the frozen tundra of Lambeau field; the chill of rate increases will freeze you out of potential homes faster than you can say "jimmy crack corn and I don't care."

We have ridden the roller coaster of low rates to the bottom and watched them creep up and then take a moderate dip again. The rates remain, at what we in the business like to call "historically low". Of course, you don't pay your bills with historically adjusted money. You pay your bills with money earned today. I have to tell you, rising costs and inflation are reducing your buying power while you sit up there on that fence.

You're waiting.

I can't find many that would disagree that prices remain high on homes for sale. Not all of the homes, but many of them remain a bit out of reach. Of course, the prices on some homes will always be out of reach. While you are sitting atop that fence waiting for the really nice 4 bedroom colonial with a finished basement to drop another $25,000, the cost of that $25,000 may be growing before it exists. It may be more prudent to sit back and take another look at what you can afford today. You might have to pass on the finished basement, but you will be able to afford your house. You might be better off if you decided what you can afford rather than waiting on that fence until the market dictates what you can afford to you. It is always better to be the driver rather than the driven.

What danger is lurking in the ocean of uncertainty? What will the next wave of financial news bring to bear? The best possible scenario would be that interest rates remain stable. A quick look at the overall financial condition of the country as it relates to the rest of the world gives us a clue. Interest rates will have to rise. Everytime you hear that the value of the dollar overseas has gone down, understand, that will impact you, while you sit perched above the fray. Instead of bemoaning that a trip to Rome or London will be more difficult, you better realize that a trip to the local grocery store or gas station will soon be more unpleasant.

Let me put it in basic terms. If you can afford a $450,000 loan today, a one percent rise in the interest rate will reduce the power of that money to $400,000. Just a half point will drop the power to $425,000. Now, before you go grab a calculator, these figures aren't based on some fancy program. It is just principle and interest at 6% for today and then 7% or 6.5% in the future.

Sitting on the fence, you may find that if and when prices drop, interest rate increases have wiped out your buying power. I don't have a crystal ball, but I can guarantee that the first rate increase will be followed by others quickly. If you wait to act, you may find that you are "chasing the market".

Maybe it's time you stopped sitting on the fence and became proactive about the purchase of your next home. It is rather easy enough to get in touch with a real estate agent. (God knows there are about 20,000 in this area). Find one, get comfortable and at least find out what you may be able to do today. The facts regarding your situation may not be as pleasant as you would wish. Knowing the facts will allow you to act. Acting now will prevent you from losing the power of your dollar while you were waiting for prices to fall.

It will never only be about price. It will always be about what you can comfortably afford. I just thought you should know, the house you are watching and waiting for the price to drop may be out of your reach by the time the price falls. Don't let the media keep you perched on that fence. Get the facts. Knowledge is power.

If you would like to discuss this information with me, I can be reached at 301-537-4377 or you can email me at macarthurgroup@gmail.com . If I can't help you in your area, I have a personal relationship with agents in most areas and I will put you in touch with one that will help you.

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Rainmaker
1,013,262
Gary L. Waters, Broker Owner Waters Realty of Brevard, LLC
Waters Realty of Brevard, LLC - Melbourne, FL
Personal Service, always.
Good post. You really do make some good points. Unfortunately, sitting on the fence is a comfortable place right now.
Nov 15, 2007 05:03 PM #1
Anonymous
Anonymous
Jerry Bangerter

John, This is great advice.  I like the addage, do something, even if it's wrong!   Just don't sit there doing nothing.

 Jerry  

Nov 15, 2007 05:03 PM #2
Rainmaker
404,315
Simon Conway
Orlando Area Real Estate Services - Orlando, FL

It was great to talk to you for so long today my friend. And you certainly did this subject justice. It makes perfect sense so more power to you. Hopefully you took me up on my challenge!

Nov 15, 2007 10:16 PM #3
Rainmaker
219,651
John MacArthur
Century 21 New Millennium - Washington, DC
Licensed Maryland/DC Realtor, Metro DC Homes

Gary - In the wonderful world of childs fiction and fables, Humpty Dumpty was quite comfortable as well. Those that have read the tale know how that worked for him.

Of course, you can also be comfortable sitting on a train track facing the southern sky. You may never notice the southbound metroliner until you become part of it's grill.

Buyers can act now or suffer my arrogant "I told you so".

Nov 16, 2007 07:48 PM #4
Rainmaker
219,651
John MacArthur
Century 21 New Millennium - Washington, DC
Licensed Maryland/DC Realtor, Metro DC Homes
Jerry - One of the greatest flaws suffered by deep thinkers is "paralysis by analysis". Historically, prices and rates flucuate but if you sit and watch, the timing of the flucuations will erode your hopes of progress.
Nov 16, 2007 07:51 PM #5
Rainmaker
219,651
John MacArthur
Century 21 New Millennium - Washington, DC
Licensed Maryland/DC Realtor, Metro DC Homes
Simon - Challenge accepted, but I fear that many of those contacted are not as sure of a move to DC as Wolf Blitzer might allow. By the way, can anyone pass him a cue card pointing out that the moderator is suppossed to control and not extol.
Nov 16, 2007 07:53 PM #6
Rainmaker
404,315
Simon Conway
Orlando Area Real Estate Services - Orlando, FL
That in itself is extremely interesting. Actually she is starting to remind me a little of Nixon. I think that she thinks the Presidency is her RIGHT and I think we all know she is prepared to do anything to get it. As for Wolf - bless - he was WARNED by the Clinton camp before the debate. I guess he heeded the warning!
Nov 16, 2007 09:44 PM #7
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Rainmaker
219,651

John MacArthur

Licensed Maryland/DC Realtor, Metro DC Homes
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