Ignore Home Prices and Focus on Interest Rates

Great news, when shopping for your next home you can put your mind at ease and not concern yourself with the price you pay!  This isn't to say that you can relieve yourself of all personal financial responsibility though, you just need to re-direct your focus.  That focus needs to be shifted off of a home's price and onto the actual cost of the home.  The California Association of REALTORS graphic below illustrates how remarkably low interest rates have fallen over the past few decades.

With the nation's housing sector steadily recovering and a national population that is becoming increasingly weary of the growing national debt, it seems unlikely that the United States government will continue to spend tax payer dollars to keep mortgage rates artificially low.  Consequently, waiting for the value of your own home to appreciate in value before selling and then purchasing a new home could amount to a losing gamble.

Buyers often place too much importance on the proceeds they will receive from the sale of their current home and the price they will pay for a new home, while completely ignoring the much more significant actual cost they will pay for their new home for years to come.  The graphic below illustrates how much a mere  $100,000 home’s monthly payment increases by just slight increases in interest rates. Now imagine a $200,000 or $300,000 home, with payments being made over the typical term of a 30 year loan.  

With this in mind, a buyer that waits too long to purchase a home could easily end up paying $100,000 more over the life of a loan if interest rates increase as expected.  That’s a hefty price to pay for indecision. After all, most people decide to purchase based on their ability to make monthly mortgage payments on a home, so why not focus on the cost that matters instead?