What’s the best time to buy a house? For most of us, we need to get a loan when we buy a house. So when we try to decide a good time to buy, it’s better to look at monthly payment and housing price both.
Santa Clara county’s median housing price is around 600K. Using that as purchase price, with 20% down payment and a 30 year fixed loan program, I did the following scenario analysis:
At 4% rate, monthly mortgage payment including principle and interest is $2292
At 4.875% rate, monthly mortgage payment is $2538 without pricing change.
To achieve the same monthly payment of $2292, at 4.875% rate, the housing price has to drop by about 9%.
As you see from the above example, mortgage rate change has quite a weight on your monthly payment. Interest did climb up to over 5% for 30 year fixed a few month ago before it came back down to the new low of 4%. On the other hand, housing prices in many cities in Silicon Valley are not just stablized but actually had some increase.
Do you think the housing price is likely to drop antoher 10% in the near future? Or do you think the interest rate is likely to incrase from 4% to 4.875%in the near future? If you think the probability of a 10% drop in price is higher than a mortgage rate increase from 4% to 4.875%, then you wait. Otherwise, seize the moment to buy low and sell high.
