Everyone Wants a Lower Price, But What About the Impact of Interest Rates?

I have had numerous conversations with clients lately that are focused around home values here in the Vegas Valley. Particularly, the one question on many people's mind is "has Las Vegas Real Estate hit the bottom of the market"?

I have put together a couple of points below that bring up another important factor to consider in addition to home values as one is calculating the "right" time to purchase a home.

When shopping for a home, the natural tendency of any buyer is to want to pay the lowest price possible. It's important to keep in mind, however, that the sales price is not the only factor that determines what the monthly payment will be. In fact, the impact of higher interest rates can easily nullify any benefit of waiting for a lower price.

Below if a diagram that depicts this fact. Based off a purchase price of $207,000 if the interest went from 5% to 6%, the monthly payment would increase $125.46. With an interest rate increase from 5% to 7%, the monthly payment would increase $256.96 per month. 

From this simple example, I would suggest to an interested buyer to examine not only the trends of what the local real estate market values are depicting but also the trends of interest rates (keep in mind that rates are at historical lows and annalists have predicted that rates will increase at the beginning of 2010 due to some additional economic factors). If you need assistance regarding summarizing any real estate and loan data, feel free to contact me and I can provide you with additional information, worksheets to customize additional examples or your particular situation, and resources.

Take care,

Kristine