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Why Wait? The Hazards of Timing the Real Estate Market

By: Aashil Patel

Prospective home buyers who choose to wait “until prices come down further” are also gambling that interest rates will hold steady. What is not widely understood is the impact interest rates can have on the real monthly cost of home ownership. Even a 10 percent drop in home prices is immediately nullified by a mere 1 percent point increase in interest rates on a 20-year mortgage loan. By the way, this relationship between interest rates and home pricing remains essentially the same at any price point. Take a look at the following example:

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EXAMPLE CURRENT SCENARIO:

Home Price - Rs. 1,00,00,000
Interest Rate - 11.0%
Monthly Payment - Rs. 1,03,218

---------------------------------------------------

SCENARIO 1:

Home Prices decrease by 5%
Interest Rates increase by 0.5%

Home Price - Rs. 95,00,000
Interest Rate - 11.5%
Monthly Payment - Rs. 1,13,108

---------------------------------------------------

SCENARIO 2:

Home Prices decrease by 10%
Interest Rates increase by 1%

Home Price - Rs. 90,00,000
Interest Rate - 12.0%
Monthly Payment - Rs. 99,097

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As you can see, even relatively small fluctuations in property prices as well as interest rates can have either a surprising or a devastating effect on your monthly mortgage installments. Moreover, these fluctuations are becoming increasingly common in the new economy.

Therefore, real estate buyers, especially first-time buyers or rookie investors, should stay away from trying to time the market. Not only does it almost never work, but it certainly can’t be done from the sidelines. Only experienced property brokers and real estate agents, who are constantly in sync with the real estate market, are in a position to take advantage of the market.

In many areas of India, house prices have been overvalued in many so-called upcoming areas but in most regions the real estate prices are according to market value only. Postponing buying a home or land may lead to more rent expenses, losing opportunities in tax benefits and the risk of sudden price increases in future.

Although property prices follow a cycle of rise and fall, most of the time real estate prices continue to appreciate for long stretches of time. Waiting for a fall in prices may not save enough money to cover the appreciation of property prices, regardless of the amount. The best strategy for home buyers and new investors is to buy now a property which you can afford at this point of time.

For the latest news and information in Real Estate, go to www.remax-mgm.com.

Article Source: http://articles.tiptopweb.info

Take advantage of Franchise Opportunities in Real Estate offered by RE/MAX India. Avail of training programs in property broking & real estate buying/selling information from RE/MAX's global broker network. Visit www.remax-mgm.com for details.

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Why Wait? The Hazards of Timing the Real Estate Market