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Should I wait to buy until prices go down?
This is the question we keep hearing from buyers lately. They see the relaxing prices combined with the greatly increased inventory and take this as a signal that prices will be going way down. They deduce that they might be better off waiting for a year until prices have gone down more and they can get a better deal. While this certainly is possible, we think there is also valid argument to the contrary. Without some sort of major economic event (loss of a major industry, natural disaster) prices will probably stabilize as opposed to dramatically reducing. There is simply too much demand for housing in Los Angeles to sustain a prolonged decrease in prices. The most likely thing to have an effect on prices however, is a change in interest rates. As interest rates rise, this can cause prices to flatten or even reduce. And since interest rates have been inching their way up and are predicted to continue in this manner, let's consider the following hypothetical scenario of rising interest rates and falling prices:
Were you to buy a house today, with a mortgage amount of $700,000, at an interest rate of 6.125%, you could expect your monthly payment to be about $4,253.00. But if you waited a year to buy a home and due to falling prices, your mortgage amount for the same house was now $600,000, but your interest rate had increased to 7.0%, you could now expect your monthly payment to be slightly more, at $4,324. You would save a little over $1,000 that year in comparison with the first house, due to your reduced tax base, but would miss out on a $42,642 mortgage interest tax deduction (about $14,000 back from the IRS) for the year you waited. Of course, this situation is hypothetical, but I think it illustrates that the price you pay for your new home is only one factor in the real cost of ownership.
So, what's the moral of this story? I think that maybe this changing market means that you can hold out a little longer for your perfect home and enjoy the increase in available homes from which to choose, as well as the decrease in competition when you find a home you like. But when you find a home you like...go for it, because you likely won't be saving yourself much (if any) money by waiting. And where will your perfect home be a year from now? Gone with the four winds.
Uggghhh...enough already!! Can we please talk about design now?
:)
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