Given all of the media’s coverage of the negatives of the market, we’re seeing that many buyers are on the fence about whether to move forward now or wait a year and purchase then. The main argument for waiting tends to be something akin to: Prices will fall and I’ll get more for my money. Though there are good arguments on both sides, Kevin Gillen’s data seems to suggest that, at least here in Philadelphia, we shouldn’t expect much of an adjustment downward in price.
At the same time, we all know that interest rates have risen (about 1% in the last quarter) and most economic forecasts assume that they will continue to rise. So what is a buyer to do?
We’ve put together some simple numbers looking at what we believe could be reality - a 5% drop in home prices coupled with a 1% increase in interest rates. Most indicators show that 5% is probably a bit extreme, but erring on the side of caution seems prudent. So what does this all mean?
| Loan Amount Today | Payment at 6.5% - Current Rate | Loan Amount if prices decreased 5% | Payment at Lower Price with 7.5% Rate | Difference in monthly payment |
| $250,000 | $1,580 | $237,500 | $1,660 | + $80 |
| $350,000 | $2,212 | $332,500 | $2,324 | + $112 |
| $450,000 | $2,844 | $427,500 | $2,989 | + $145 |
It turns out, from a financial standpoint, most buyer will save themselves money by hedging their bets against increasing interest rates rather than hoping that the market will dip. After all, most people who were hoping for a dip were not so happy to find out that Center City prices are up 1% year over year….
Post on Philly Living's Philadelphia Real Estate blog.
