Many buyers I meet here in the LA Westside hold the opinion that home prices may continue to soften over the next year based on whatÂ they see and hear in the media.Â In a recent interview withÂ The Times, Wayne Yamano, director of research at John Burns Real Estate Consulting in Irvine maintains thatÂ buyers shouldn't focus so much on home prices as they should on affordability.Â
As buyers plan their home buying strategies,Â how affordable that monthly payment is may prove to be a far more important metric.Â Right now,Â affordability isÂ "absolutely fantastic and highly unlikely to getÂ much better" according to Yamano.Â Otherwise put, buyers should place affordability over home pricing.
The perceived benefit from waiting for prices to fall can easily be overshadowed by the price increase of a mortgage.Â Mortgage rates have only one way to go and that's upward.Â Even a small bump in rates can easily wipe out savings achieved by waiting for that price reduction.Â
"The impact of mortgage rates (on monthly housing costs) is tremendous," he maintains and I couldn't agree more with him.Â To illustrate, say prices remain constant and rates rise a full percentage point from 4.5% to 5.5%.Â Â A $600,000 homeÂ with a $480,000 mortgage (assuming a 20% down) would cost you 12% more (about $293) each month to own.Â Even worse, a 2% increase to 6.5% would bump your mortgage upwards nearly 25%!
The conventional wisdom for buyers is to put less emphasis on the home's market price and more on the monthly payment.Â Home affordability is at an all-time high and waiting for wholesale market price declines can rob you of opportunity.Â Great deals (defined as buying a great home for a good price that comfortably fits into your budget) are made through effective negotiation - not waiting to read about one.Â