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Maybe Now is Not a Bad Time to Buy a Home After All

If you fall into the category of someone who isn’t sure whether now is a good time to buy a home then I have just three words for you: Get out there! With interest rates at historic lows and with a great selection of Indianapolis homes for sale the state of current market is almost the very definition of a good time to buy. “But I’m not sure the market has bottomed-out yet.” The problem with waiting for the market to hit rock bottom is that it greatly increases the likelihood paying an even greater price at some future point versus acting now. This basic principle applies to home prices as much as it does such things as stocks and bonds, interest rates, currencies, commodities, etc. Only a sustained increase in price can signify when a market has hit bottom. As such, its actual occurrence can only be known in hindsight—i.e., when it’s too late. Waiting for the bottom to occur is like gambling with the single largest investment you’ll ever make—at least for most Americans. But the risk of waiting isn’t limited to home prices.

Mortgage interest rates will also not stay low forever. To illustrate, a $200,000 loan amortized over 30 years at 4.5 percent equals $364,813 in total payments. Now, let’s assume this same house could be purchased for just $175,000 by waiting several months, even a year or more. Only let’s assume that the prevailing 30-year mortgage interest rate by this time has reached 6.5 percent. A $175,000 loan amortized over 30 years at 6.5 percent equals $398,202. So in this example, waiting for home prices to drop cost us $33,389 over the life of the loan. The point here is that price is not the sole determiner of cost. Cost is what you actually pay, and as such, it should be your primary concern. Keep in mind that you don’t have to go very far back in history to find the last time rates approached 6.5 percent. According to Freddie Mac historic data, the annual average for a 30-year fixed rate was 6.41 percent just 4 years ago (2006).

Some misconceptions about mortgage interest rates have to do with the manner in which they are set. For example, some folks believe that the government is keeping mortgage rates low in an effort to stimulate home sales. In fact, mortgage rates are in no way controlled by the government. Rather, they are driven by speculators in the private market in a fashion similar to oil prices. What about FHA or VA? Nope. FHA and VA are nothing more than massive government mortgage insurance programs. Nor are mortgage rates tied to the ‘prime’ rate as this represents short-term money. Once the private market has driven 30-year rates to a certain point, retail lenders then borrow this money at a wholesale rate and mark it up for resale in the form of retail mortgage loans. The fact is, nothing but the whims and chance fluctuations of a privately driven market determine where rates are from one day to the next.  Mortgage rates can, and most certainly will, rise again. The only question is how soon.

So if you’re wondering whether the present market is a good time to buy a home then remind yourself of these aforementioned points, and hopefully, your decision will be made easier. And remember that the ultimate merits of any decision can only be judged in hindsight, by history. So why not get out and make a little history of your own by snagging one of the many great values that are waiting to be had on the Indianapolis real estate market.