low interest Rate high house price vs high interest rate low house price

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jordan
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low interest Rate high house price vs high interest rate low house price

Post by jordan »

Hello All,
I am first time home buyer trying to get new house for my self in this crazy property market. I did some reasearch about it and need some advise. is it advisable to buy house with low interest rate but housing price are at premium rate of at least 40-50k . Should I wait for sometime so Housing price settle down.
I am looking to buy town house around 400k to 460k. I am renting right now but can wait for few more months to get the right house. I dont have issue with down payment even if the interest rate go high and I have to pay more money as down payment.

Please advise as housing inventory is low and people are paying premiums for the house . its similar market like 2006. some people who bought house at the high price in 2006 are selling at same price to get out of the housing mortgage.
Please share your view on it.

Jordan
adamthesmythe
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Re: low interest Rate high house price vs high interest rate low house price

Post by adamthesmythe »

Housing prices do not move only in response to interest rates. At least some of the recent increases are probably a consequence of people rethinking their housing preferences in response to the coronavirus.

If you really do get a low price and high interest rate, then (if interest rates fall) you can refinance later to have the best of both worlds.

Personally I think it is only worthwhile trying to avoid the crazy extremes of the housing market (if you can identify them, that is) and otherwise just buy when it makes sense. Considering your personal finances, needs, wants, and job prospects.

Now once you do own- it won't matter much whether you sell at a high price and buy at a high price, or sell low and buy low for your next house.
exodusNH
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Re: low interest Rate high house price vs high interest rate low house price

Post by exodusNH »

jordan wrote: Tue Jan 12, 2021 10:53 am Hello All,
I am first time home buyer trying to get new house for my self in this crazy property market. I did some reasearch about it and need some advise. is it advisable to buy house with low interest rate but housing price are at premium rate of at least 40-50k . Should I wait for sometime so Housing price settle down.
I am looking to buy town house around 400k to 460k. I am renting right now but can wait for few more months to get the right house. I dont have issue with down payment even if the interest rate go high and I have to pay more money as down payment.

Please advise as housing inventory is low and people are paying premiums for the house . its similar market like 2006. some people who bought house at the high price in 2006 are selling at same price to get out of the housing mortgage.
Please share your view on it.

Jordan
If you buy and sell in the same market, it really doesn't matter since both properties will be up or down (in general.)

I closed on my house in August 2005. It has still not recovered the value I paid for it, even with the crazy market. And even when it does, when you factor in inflation, I will still have lost money. However, my mortgage, insurance and property taxes are less than what it would cost to rent an apartment -- and I got the tax benefit of the mortgage interest until the 2017 tax changes.

What do you want from a house? Is it simply a place to keep your stuff or do you consider it a status item? I've found as I've gotten older, that I want a place that's just big enough. I have friends with 4,000 sq ft houses. Mine is under 1,900. With my girlfriend and I working from home, I would desperately like another room so that I wouldn't have to work in the dining room, but it's a temporary thing.

I like the fact that I'll be mortgage free in less than 13 years.
Last edited by exodusNH on Tue Jan 12, 2021 11:07 am, edited 1 time in total.
Topic Author
jordan
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Re: low interest Rate high house price vs high interest rate low house price

Post by jordan »

hello ,
Thank you for your reply but trying to find answer that is it advisable to buy house in this craze market ? I check zillow by changing the reducing housing price to 30k and increasing the interest rate to 4.2 it didnt show me much difference in the over all mortgage payment.
I agree to your point if I buy house at a high mortage rate I can get the lower mortgage rate later but with low mortage rate i will not have that option.

I am looking for advise weather to buy house in this crazy housing market and will next stimulus has any impact on the housing market ? if inflataion will increase will the housing price will increase ? what about the afforadibility if high housing price will increase more ?

I have stable Job and I am paying for 2 bed room apartment around 1650$ for a month. I can wait for few month as my family might get bigger otherwise I am living comfortably in apartment with my one daughter .

Jordan
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Re: low interest Rate high house price vs high interest rate low house price

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (purchasing a home - financial aspects).
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megabad
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Re: low interest Rate high house price vs high interest rate low house price

Post by megabad »

Unfortunately, a lot of what you are asking is attempting to predict the future which is pretty difficult. I don't think anyone can really give a confident answer here. You just have to decide for yourself. If the decision is made based on an appropriate lifestyle and not purely financial reasons, than the worse case scenario is that you end up with an enjoyable housing lifestyle that you overpaid for...not the worst situation to be in.
Olemiss540
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Re: low interest Rate high house price vs high interest rate low house price

Post by Olemiss540 »

It is definitely better to buy lower priced, higher interest housing IMO. Transaction costs and the risk associated with selling at a loss are mitigated with the payment assumed equal. There is no upside to buying at a higher price but lower interest rate that I can think of financially.

The issue is you have no idea how/when/if the market is going to drop and/or the interest rates will climb. They can act independently especially given the Fed's ability to intervene with outside $$$ if they want to stimulate the housing market.

Everyone seemingly predicts interest rates rising but not one person has yet to be correct (over the last few decades). I am also in you position and hope inventory in spring improves sufficiently to atleast slow the bidding madness....
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
alex_686
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Re: low interest Rate high house price vs high interest rate low house price

Post by alex_686 »

jordan wrote: Tue Jan 12, 2021 10:53 am I am first time home buyer trying to get new house for my self in this crazy property market. I did some reasearch about it and need some advise. is it advisable to buy house with low interest rate but housing price are at premium rate of at least 40-50k . Should I wait for sometime so Housing price settle down.
Why do you think that there is a premium of 40k to 50k?

For context, real estate has about the same level of risk and return as BBB bonds. This is for unlevered real estate (i.e., no mortgage) and includes changes in principle, rent, and expenses. Rent includes imputed rent, the rent you could earn if you rented your house out.

Next, take a step back. Think about your goals - does it make a sense to buy a house now? If it is a long term goal and if the house is right, then go for it. What about your portfolio? Can you handle the risk?
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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jordan
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Re: low interest Rate high house price vs high interest rate low house price

Post by jordan »

alex_686 wrote: Tue Jan 12, 2021 12:13 pm
jordan wrote: Tue Jan 12, 2021 10:53 am I am first time home buyer trying to get new house for my self in this crazy property market. I did some reasearch about it and need some advise. is it advisable to buy house with low interest rate but housing price are at premium rate of at least 40-50k . Should I wait for sometime so Housing price settle down.
Why do you think that there is a premium of 40k to 50k?

For context, real estate has about the same level of risk and return as BBB bonds. This is for unlevered real estate (i.e., no mortgage) and includes changes in principle, rent, and expenses. Rent includes imputed rent, the rent you could earn if you rented your house out.

Next, take a step back. Think about your goals - does it make a sense to buy a house now? If it is a long term goal and if the house is right, then go for it. What about your portfolio? Can you handle the risk?
I am first time house buyer. its for my living as right I am paying for aprtment rent but family is getting bigger so thought to buy house but its a crazy madness in bidding. its 40-50k in premium because people who bought recently selling again to tap quick 40-50k . one can compare price history and judge. some people who bought around 2005-2006 trying to bell out of high housing price.

I think i will wait for few months to see where it goes. definately wont pay much higher premium to tap in low intereste rates
Jordan
fyre4ce
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Re: low interest Rate high house price vs high interest rate low house price

Post by fyre4ce »

For the same monthly payment, a lower-priced higher-interest purchase is better than a higher-priced lower-interest purchase. Property taxes and transaction costs are lower, and you should have more of an opportunity to refinance if rates drop.

That said, I don't recommend trying to time the housing market. If buying a house is an otherwise good financial decision, I would not let a high-price low-interest rate market stop you from buying. How do you know the market won't continue to rise?
KlangFool
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Re: low interest Rate high house price vs high interest rate low house price

Post by KlangFool »

jordan wrote: Tue Jan 12, 2021 10:53 am Hello All,
I am first time home buyer trying to get new house for my self in this crazy property market. I did some reasearch about it and need some advise. is it advisable to buy house with low interest rate but housing price are at premium rate of at least 40-50k . Should I wait for sometime so Housing price settle down.
I am looking to buy town house around 400k to 460k. I am renting right now but can wait for few more months to get the right house. I dont have issue with down payment even if the interest rate go high and I have to pay more money as down payment.

Please advise as housing inventory is low and people are paying premiums for the house . its similar market like 2006. some people who bought house at the high price in 2006 are selling at same price to get out of the housing mortgage.
Please share your view on it.

Jordan
jordan,

How much it costs to rent a townhouse? If it is not above $2,500 per month, why would you buy it?

I would only buy a house when the PITI (20% down payment and 30 years fixed-rate mortgage) is 20% to 30% lower than renting.

KlangFool
Lexx
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Re: low interest Rate high house price vs high interest rate low house price

Post by Lexx »

In this market, I would rent before purchasing. IMO housing is in a massive bubble all across the nation right now. I can foresee a 30-50% drop in market value in many areas during the next major recession. It happened back in 2007. Housing dropped up to 70% in some areas. So my attitude is so what if interest rates are low? I could care less. Why pay top dollar for something and then take an IOU for a huge amount of money?

Renting means no repairs, no property tax, no HOA fees, etc. Put the savings into the market and get a good return on it. When you've saved up enough for a decent home, and prices are more reasonable, then you can get into the market for a house. If the interest rates are higher, so what? They will eventually come down again and then you can refinance.
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Hector
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Re: low interest Rate high house price vs high interest rate low house price

Post by Hector »

I would buy a house that I can live in rest of my life when I can comfortably afford it.
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Re: low interest Rate high house price vs high interest rate low house price

Post by Hector »

alex_686 wrote: Tue Jan 12, 2021 12:13 pm
jordan wrote: Tue Jan 12, 2021 10:53 am I am first time home buyer trying to get new house for my self in this crazy property market. I did some reasearch about it and need some advise. is it advisable to buy house with low interest rate but housing price are at premium rate of at least 40-50k . Should I wait for sometime so Housing price settle down.
Why do you think that there is a premium of 40k to 50k?

For context, real estate has about the same level of risk and return as BBB bonds. This is for unlevered real estate (i.e., no mortgage) and includes changes in principle, rent, and expenses. Rent includes imputed rent, the rent you could earn if you rented your house out.

Next, take a step back. Think about your goals - does it make a sense to buy a house now? If it is a long term goal and if the house is right, then go for it. What about your portfolio? Can you handle the risk?
No wonder why many people are scratching to buy it. Housing price has gone up a lot in the last decade. Housing prices drop more than a decade ago and since we don't remember ancient things, we think housing prices will continue going up.
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