See the Difference: Rent vs. Buy

With the market the way it is it’s easy for buyers to focus only on the purchase price of their new home.  The fact is that the interest rates can play a much bigger role in the cost of home ownership.  Let’s say you are looking at buying a home in Carlsbad, California in the $400,000 range and today the interest rates are 4.5% (for those with good credit), on a 30 year fixed mortgage with 20% down payment your payment would be approximately $1,621 per month, principal and interest.  But let’s say you, the buyer, want to wait for the price to drop…  Maybe the price drops, maybe not.  If it does NOT drop and the interest rate goes up by 1%, your payment would go up $196 per month.  That’s a car payment, a small cheap car but still!  Over the life of the loan this would be $70,560, if you kept the loan for the full 30 years.  5 Years is the average for people to keep a house – so still that’s $11,760.  Nothing to sneeze at.
But let’s say the price does drop.  On a $400,000 home, if the interest rate goes up 1% the price would have to come down to $365,000 in order to maintain the same payment as in the example above. 
Long story short – buyers need to decide where they are going to “place their bets” and it is a gamble.  No one knows where the market will bottom out, it is only after the market starts to go back up that you will ”know” for sure that the bottom has been hit.  Place your bets - Is the interest rate going to go up or are prices going to continue down?  Unfortunately no one knows but I do know this – cash buyers are entering the market in massive numbers.  Our office has been experiencing 30% or more of the transactions are cash.  It’s the old cliché “buy low, sell high” and this is the lowest that real estate prices have been in about a decade and the lowest the interest rate has been in about fifty years. 
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