I recently received a short excerpt from Brad Roche a business friend and client of mine, and I thought it was worth sharing. ~ Sara
Rate Vs. Price Reductions
Everyone wants to get the best deal when buying a home. However, for potential buyers who are waiting to see if home prices come down a little more, the wait could cost them.
Say a homebuyer wants to buy a home that costs $300,000, but the buyer wants a better deal on the home. So, she delays a transaction until the home is reduced by $10,000. She also plans to finance 90% of the purchase price. What would happen if rates increased during her waiting period?
As she waited for the price to reduce, rates rose to .75% to 6.00%. She would end up having total payments over $35,000 more than paying the $300,000 purchase price on a 30-year term with a locked 5.25% interest rate. In other words, the buyer would save $10,000 only to end up paying $35,000 more.
Now these prices and rates are just for the sake of example. The point is that sometimes waiting for a home price to reduce may end up costing homebuyers much more than they expect if rates rise.