Waiting for the bottom?

A lot of people shopping for houses today are moving very cautiously towards making a purchase as they keep their eye on the depreciating prices of houses.  Everyone wants to buy at the “bottom” of the market – which is a natural feeling – who wants to buy something today and have it be worth less in 6 months.

One of the challenge with this is that we are not going to know when the bottom hits until we can look back and point at it in our rear-view mirrors.  Once prices start to rise at some point, we will know, for sure, when the bottom was. Until then, we’re all just guessing – and gambling.

The second thing to consider is really a math exercise.  If, for example, there is a home that you like that you can currently buy for, let’s say,  $250,000.  If you wait 3 more months, the price might drop to, let’s say $230,000 giving you a “savings” of $20,000.

Let’s look closer at that $20,000. You have to consider what it is costing you NOT to buy for another 3 months.  If you are a first time buyer and you are currently renting, that means that you’ll be paying rent for 3 more months and not enjoying a tax deduction on the interest you’ll be paying in your new mortgage. The earlier in the year you make a purchase, the bigger your deduction will be on April 15, 2010.

If you currently own a home, compare your current interest rate to what you would be paying if you made a move sooner than later.  If you’re current rate is, let’s say,  7% and you can get a mortgage on your new home for 5%, how much will you be saving on your monthly payment.

Everyone’s situation is going to be a unique but you should take the time and do the math to figure out how much it will cost you to wait for “the bottom.”  You might be surprised.