Monday, November 01, 2010

"Buy the House Now"?

Ticker finds the rotten apple in that barrel.

Yes, rates are low. But if the rates pop by 1.5% (to 6.5%) in the next few years, the value of that $200K house may only be $165K, because people buy houses on CASHFLOW, not on "value."

So, yes, there are some good reasons to "buy now." But there are also good reasons NOT to.

Read the link, folks.


Neo-Con Tastic said...

But this hypothetical is calculating the home loan going full-term. No one who takes out a 30-year note should have the intention of fulfilling that loan.

30-year notes should be used to build short equity in a home, make payments while saving/accruing wealth, and then hopefully selling at a profit (equity + increased value). Remember, most 30-year notes have a typical life of seven years.

IOW, 30-year notes should only be used on first- and second-time home purchases. I don't see Ticker's logic.

Grim said...

If inflation is in the works, too, the picture warps quite a bit. That $200K house may end up being worth millions.

Neo-Con Tastic said...


Dad29 said...

The logic is simple.

At this time, Bernanke is flooding the market with dollars AND holding rates at historic lows.

When rates pop up, and they will, (inflation is inevitable) mortgage rates will increase. Then the cash-flow required to sustain the payments will, in effect, reduce the value of the house.

$1250/month will NOT go as far in 2 years as it does now; thus, the selling price of the house comes down to meet the $1250 target of the buyer.

Remember that while inflation increases paychecks, those are usually the LAST to experience the effect.