“Ignore the Headlines” Says Time Magazine

I always temper any of good news I find, reasons to buy or feelings that things could turn around. I realize to many that if I say the market is great, turning around, etc. then many will say something like this I read in the comment section of Ryan Frank’s Blog:

There is little significant discussion on the realtor s’ blogs because it might hurt business to be so pessimistic or should I say realistic about Portland’s current housing market. (italics are mine)

Because of this knee jerk reaction I find outside sources for anything positive information such as Time magazine’s article on why to buy or positives in the market. They essentially show that buying now, with interest rates low, is better than expecting a 10% drop in prices and buying then. Of course they have the caveat that interest rates would be up at that time after the drop which is a little bit of a stretch.

Consider a typical home that sells for $218,900. You put down 20% and get a 30-year fixed-rate mortgage at today’s rate of 5.5%(Today’s rate is around 6.13 or so). Monthly principal and interest come to $994.31. Let’s say that 12 months from now the same house goes for 10% less, or $197,010. But by then the recession is history and the Fed is jacking up rates to stem inflation. If mortgage costs rise a point, to 6.5%, your monthly payment would be $994.94 and you’d have saved nothing. Meanwhile, home prices might steady and sellers might become less willing to negotiate. And you have spent a year living someplace you’d rather not be.

The real point, that seems to have been proven in stocks, is that trying to time the market is next to impossible. The people who do it are luckier than anything. Your only reason to buy should be centered on your ability to pay. Which many didn’t do with teaser rate mortgages. If you base it on a realistic ability to pay and plan not to move for a few of years, you will be fine in the long run if everything stays equal, and it doesn’t always which is life.

Just as the people who sold stocks after 9/11 missed out because of the panic. The people who continued to plunk money down each month regardless of where the market was that month have made out very well…over time.

The hopeful investors, and there are many from 2006, are the ones hurting. In 5 years I think there will be a happy home owner, as long as they didn’t over extend themselves. And I have told some people they were better off staying in an apartment.