Last time we were together it was resolved that today’s potential home buyer enjoys a ‘home court advantage’ of sorts.  Simply, due to the high supply of homes caused by a necessary market correction…err..eh..’foreclosures’…compared to the relatively low demand (number of sales), today’s market can be categorized as a “Strong Buyers Market”.

This is incredibly important for buyers who may want to take advantage of the market at a optimum time that supports their interests over the sellers.  Without question, that time is now!

I’ll say it again, we are in a “Strong Buyers Market”!!!!

“But wait Cory” you say.  “How can you say ‘optimum time’, when you have not answered the question as to ‘where is the bottom of the housing market?’”

That’s a fair and straightforward question.  The answer of which can be quite straightforward as well.

No, I don’t have a crystal ball.  I don’t know who will be in the Super Bowl come February, nor do I know if Romney can hold off Cain to run against Obama.  But I do know numbers.  As critical as timing the local real estate market, arguably it’s the interest rate associated with that homes 30 year mortgage that is the largest factor in swaying actual carrying costs through the years.

In considering waiting for the price of real estate to drop, concerning interest rates, ask yourself this question: do you want to buy the house for less money, or do you want to pay less for the house?

Here’s an example using 2 loan scenarios calculated at 1.25% prop tax and  .5% PMI.  Both scenarios track an identical home, however the first example features a home sales price of $250,000 at a 4.5% 30 year fixed rate.  The second example features a 10% reduction on price of the same home, but a 5.5% interest rate on the loan.  In short, the buyer waited for home prices to drop, but an expected interest rate increase (1%) did take place during the wait.

Example 1: 

Sale Price $250,000

Interest Rate 4.5%

Payment $1527.13

Interest Paid (30 years) $193,516.78

Example 2:

Sale Price $225,000

Interest Rate 5.5%

Payment $1590.03

Interest Paid (30 years) $234,909.09

Before we size up the results here, let’s first review how we got here.  Last week it was posed that a buyer potentially wait on the sidelines to buy till the question, ‘are we at the bottom of the market’ was answered with certainty.  To which my answer was simple:   do you want to buy the house for less money, or do you want to pay less for the house?

Today’s real estate environment enjoys extremely low values.  I’m presently in negotiations with a Grover Beach property, two units, bringing in $1750 a month.  Seller just countered at $191K.  How loudly can you say “CASH FLOW”?  Point is, when you can buy two units in the 5 Cities for under $200K, you are enjoying extremely low values.

True also, we are enjoying HISTORICALLY LOW INTEREST RATES, and it’s my contention that this critical reduction in interest rate creates a greater positive influence to BUY NOW than even the huge reduction in price we have seen over the last 3 to 4 years!!!!

So yes, prices have fallen and inventory is high (Strong Buyers Market) and interest rates are rock bottom (Historically Low Rates).

Is now a great time to buy?  Of COURSE IT IS!!!!!!!!!!!!

But are we at the bottom?  THE ‘BOTTOM’ OF HOME VALUES IS TRUMPED BY RISING INTEREST RATES in a market that the federal government has artificially kept low for the last 3 years. Rates must rise.

The Examples above show a very real scenario of an individual that chooses to buy today versus an individual who focuses too much on ‘property values’ at the expense of a very likely interest rate increase.  True, they secured a home a lower price but they paid through the nose in increased house payments and unnecessary interest over the course of the loan!!!!!!

In closing folks, our parents and their parents before them bought houses in good and bad times…sometimes in very bad times.   They did it because it was the right decision for them at that moment.  Well, your ‘moment’ is now.  Your situation in the scheme of things is this:  property has fallen in value by up to 50% in some area; there is a ton of inventory to choose from and demand is low;  and ohhh…you’ll enjoy a low fixed interest rate that would even make your Grandmother green with envy!

For this reason, for many smart folks across America, the bottom is now.