Buy your home now or at least begin your search in earnest. If you are an aspiring homeowner, or planning to move up or down, you really want to get off the fence. If you are staying put and haven’t refinanced, you need to get off the dime and do so. Why? Interest rates are going to rise sooner than you think. As an amateur student of economics, I am watching this stuff everyday and this is what I see: the signs that the economy is picking up steam are becoming more and more convincing. The data on almost every front show profits are up. The Government just revised GDP upwards to 2.5% and once the new congress addresses the issue of expiring tax cuts, small businesses are going to start to hire and begin their long put off capital equipment upgrades. From machinery to computers, businesses have been reluctant to spend and to hire. Preserve capital, save cash; this has been the mantra of small business since 2007. I predict, that’s about to change. When this happens, we’re going to see steady improvement in the unemployment picture. Housing will not lead us out of this recession as in years past – there’s just too much uncertainty about distressed properties for housing to take on the leadership role. But as employment improves, so will housing.
So why then buy now? Again, it’s about rates. Would be buyers are so concerned with the short-term price decline risk, that they continue to wait for a bottom; some signal that it’s safe to go back in the water. Folks, that signal is improved corporate profits, improved GDP and ultimately rising rates. Consider that a 1% move in rates is equal to a 10% change in purchase price when measured in terms of the cost of ownership. In other words, if rates climb to just a mere 5.5% – still extremely low by any historical standards, the price of that home effectively just went up 10%. While the risk remains that prices have further to fall, the risk that rates will rise, never to return to today’s levels, is increasing by the day. The reality is that gauging a bottom is impossible, and can only be calculated through the rear window of time. What any Wall Street trader will tell you is that catching the bottom is about luck. Minimizing risk and hedging your bet, is the ticket to a successful trade. With real estate it’s much the same. Negotiate the best price you can, be willing to walk away, but don’t lose the property if it’s what you want, over the hope for a somewhat lower price when we hit bottom. Like a bouncing ball, it will already be on the rebound when see the bottom. Coupled with higher interest rates, you’ll be kicking yourself while hoping that today’s market comes back just long enough for you to jump in, and at that point you’ve missed it.
Published on 2010-11-23 07:35:41