Now is really a good time to buy real estate in Rhode Island! Why? Cuz…

No really, we are hearing that some people are awaiting the new administration of Obama to seek property purchases because they feel that the talk of interest rates going to 4% (really 4.5% has been mentioned) is going to save them tons of money. Is it?

Currently, rates in RI for good credit risks are running about 5% to 5.5%, or near all time lows, given inflation, deflation, and the like. These are great rates, but is it the rate that matters? Of course. But how much of a factor is the rate in the overall purchase of the property?

Generally, as prices rise, interest rates fall… of course, for the recent market, rates have been falling WHILE prices have also been falling. Unusual, but not unheard of. Yet, people will wait for rates to come down further, and perhaps fail to note that the housing market price levels have been stabilizing. Stabilizing means not dropping as precipitously as they have been in recent months. In some markets, prices are actually beginning to fix at current levels, or even appreciate. Not many markets I grant you, but some. As interest rates go lower, the housing price indexes are ceasing the decline, and stabilizing. So if a buyer waits for too long, prices will go up, removing any benefit from the lower rate.

You see, in real terms, houses appreciate generally at between 3% and 5% per year… A 30 year loan generally ends up costing about 2 times what the loan amount is. As prices move, rates move too, and in general terms, a house will cost the same, over the life of the loan, as a ratio of the cost of money to the cost of the property vary, somewhat inversely… for that given market.

We expect that rates may come down somewhat in the next few months, but we are seeing at the same time, that prices are stabilizing. One could argue that the prices are stabilizing BECAUSE of the lowering rates. If the rates move further downward, prices will stabilize even more, and perhaps begin to increase at the normal rate. It becomes a wash… same cost regardless, over the life of the loan.

Of course, most people these days do not remain in the property for the life of the loan. And so they argue that the cost of the house is different than what I state above. Perhaps, But in mortgages, the interest is paid up front in the loan life, and so the cost of the money is eaten by the borrower after perhaps 3 years or so of payments… perhaps as many as 6 years… but the average homeowner remains in a property for about 7 years. So they pay for 30 years worth of interest anyway, regardless of the fact that they do not stay in the house that whole term.

In any event, the market is stabilizing in RI despite the very high unemployment rate of over 10% now. We anticipate that the market will further stabilize over the next 6 months and begin recovery in that time frame… interest rates may be marginally lower in the next few months, so now is in fact a great time to buy.

See our home buyers section for details, and watch our interest rate news postings for mortgage data. Visit us at www.HomeSalesRI.com for a wealth of useful information about purchasing real estate in Rhode Island and Southeastern MA.