The Daily Experiment

If you have ever given thought to home ownership now is the time. Interest rates are at historic lows, $6,500-$8,000 tax credits are there for the taking, home prices have fallen dramatically from their peak of just a few years ago, and money is available to credit worthy individuals. If you want to own a home you will never have a better opportunity than right now.

Reproduced with the permission of Mortgage-X.com

The image above charts interest rates over the past 40 years. If you think now is not the “right” time you probably will never join the ranks of Americans who have staked their claim. When someone says rates are at historic lows, this is what they are talking about.

Rates have been artificially suppressed by the Fed in order to help stimulate the economy and to a degree it is working. What you may not realize is that a 1% hike in mortgage rates will drop the amount of what you can afford to buy by 10%. To put it simply,  your payment on a $250,000 home at 5% is the same as your payment on a $225,000 at 6%. You can buy 10% more house today than you should be able to buy because the Fed has kept rates about 1% lower than they would otherwise be without the interference. So what happens when the Fed stops the program intended to keep rates artificially low on March 31st? The answer is simple. Rates will rise. It will not happen over night, but if conditions are less than ideal, don’t be surprised to see rates floating around 7% in the not so distant future. So that $250,000 house you could afford today is going to need to drop to $200,000 if you want to be able to afford it if rates hit 7%.

The scenario I just presented does not even take into account the tax credits you may be eligible for. Those are promised to expire on April 30th. You need to be under contract for a home by April 30th if you want to take advantage of the credits. Just in case you haven’t heard, the credit has expanded to current home owners as well and you don’t have to sell your existing home to qualify.

If that isn’t enough to convince you, take into consideration the recent reduction in home values. According to an article in The Economist December 30, 2009 issue, US housing prices are currently 3.1% undervalued when looking at the price-to-rents ratio which is similar to looking at a price/earnings ratio used by stockmarket analysts.  Prices have fallen back down to earth and many believe we are finally approaching the bottom end of the decline.

If you think you will be able to get a better deal later you may never find the right time to buy. If you have any questions about the Spartanburg real estate market give me a call. Spartanburg is the #2 housing market in the country already so the time to act is now! No joke, we are the 2nd strongest market in the entire country according to Business Week and I would be happy to tell you why.