If you've been waiting for the bottom, read the recent headlines:
Greenspan Predicts Rise in Interest Rates (Daily Real Estate News | June 16, 2008)
The credit crisis is under control, but with inflation now the top concern, higher interest rates can be expected, said former Federal Reserve Chief Alan Greenspan last week.
Greenspan said he thought the credit crisis had peaked in March. "I think the worst is over (for the U.S. economy) if the financial crisis is over," Greenspan said via video link to an event in Mexico.
But to keep inflation under control, Greenspan said the Fed will have to tighten monetary policy and that will drive up interest rates.
Mortgage Rates Climb to 9-Month High (Daily Real Estate News | June 20, 2008)
Freddie Mac reports a jump in the 30-year fixed mortgage rate to 6.42 percent during the week ended June 19 from 6.32 percent the prior week, marking a nearly nine-month high.
The 15-year fixed mortgage rate rose to 6.02 percent from 5.93 percent, the five-year adjustable mortgage rate climbed to 5.89 percent from 5.70 percent and the one-year ARM jumped to 5.19 percent from 5.09 percent.
Freddie Mac chief economist Frank Nothaft attributes the gains to concerns about inflation after the consumer- and producer-price indexes for May were issued. Higher mortgage rates sparked an 8.7-percent drop in loan applications in the past week and a 21-percent decline year over year, according to the Mortgage Bankers Association.
How does that affect todays Real Estate market? Property prices have dropped as sales have slowed. Owners who do not "have" to sell, are sitting quiet, waiting to see if the market will pick up. Buyers know that it's a good time for them to take action, but they've been holding back for even lower prices.
For those who have waited for the bottom, the time is here. Sure, mortgages have started rise. That shows the bottom has been reached. And when the Federal reserve says it's time to raise rates, you know mortgages will move higher. So before that happens, it is prudent to make your investment move. Why now you say? Look at this example:
Say you purchase a 2 BR resort condominium in Summit County for $300,000. You start with a 20% down payment. You finance today at 6% interest or you wait a while until the interest goes up to 7%.
| Rate | 6.0 % | 7.0% |
| Mortgage | $ 240,000 | $ 240,000 |
| Years | 30 | 30 |
| Monthly Payment | $ 1,439 | $ 1,439 |
| Total Interest Paid | $ 278,012 | $ 334,821 |
| Difference | | $ 56,809 |
Bottom line - that one percent increase in interest can cost you almost $57,000 in interest payments.
And what it really means is that right now, just as interest rates turn the corner, the cost of Real Estate is a great value. It's time to buy and time to sell.
To try your own calculations with numbers that apply to your situation, go to Bankrate.com's Mortgage Calculator.