We were out to dinner with some good friends (a married couple) last night and we started talking about life. They will be moving back to Washington this summer, after spending the last three years in Virginia. We naturally discussed where they would live, which then snowballed in to a conversation about housing in general.
As I’ve discussed many, many, many times before, Girl Ninja and I have been directing a good chunk of our discretionary income towards our savings account each month. We would love to have $100,000 in the bank before we buy a house (don’t know if we will actually wait til we get there, but it sure would be nice). I know $100,000 seems excessive, but that’s exactly why we want to do it. The more we have in savings, the less strapped we will be when we put 20% down. You call it excessive, I call it responsible
While Girl Ninja and I wouldn’t even be in the market to be homeowners until April 2012 at the earliest, it’s never to soon to start planning. I feel like we have a pretty good handle on the “planning” side of things, but the “predicting” aspect of real estate is a whole new territory for me.
The housing market bubble burst in 2007/2008. It dropped hard and fast for a long, long time. Over the last 12 months, however, it’s remained pretty steady and in my opinion is probably pretty close to a bottom (if not already there). Houses and neighborhoods that were completely out of the question for us four years ago, are not only a possibility, but could be a reality.
So the dilemma is this. With our current savings stash, we could theoretically buy a house tomorrow and put a reasonable percent down. The only thing we need to do now is make some predictions on the housing market. That way we can figure out if we should buy tomorrow, in six months, a year, or three years.
Here are some of the things I’m predicting….
- I believe house prices in the greater Seattle area are at, or near, the bottom.
- I believe house prices will remain relatively stagnant for the next five years, give or take a few. Basically, I don’t think house prices are changing much in the near future.
- I don’t believe interest rates will be going much, if any, lower than they are currently. Four percent is about as sweet as it will get.
- I believe interest rates will stay under 5% for another 6 to 12 months, but after that we could see some significant corrections (rates hovering closer to 6%-8%).
I feel like I have a decent perspective on the first three bullet points, but the last one is what really stresses me out.
How long will interest rates stay low?
The interest rate on your mortgage plays a significant part in whether or not buying makes sense. The monthly payment on a $300,000 loan at 4% (over 30 years) is $1,432. Take that same loan, but with a 6.5% interest rate and your monthly payment balloons to $1,896. That’s $464 a month more! For the same freakin’ house!!!! People like to say renting is just “throwing your money away“, but a mortgage with a moderately high interest is no different.
Long story short, if Girl Ninja and I want to buy a home in the near future (which we think we do), we probably don’t have more than a year to get the best deal possible. If we wait too long, interest rates are surely going up, and we may not be able to afford anything worth buying. So my question(s) to you reader is this….
How long do you think interest rates will stay sub 5%?
When they do go up (which they will) do you think house prices will drop further to compensate or be able to hold steady because the market is picking up steam?
Do any of your predictions significantly differ from mine? If so, which ones?
Is anyone even reading this or are you all on extended vacation between Christmas and New Years?