Home Buying in San Francisco>Question Details

RSW, Other/Just Looking in Belmont, CA

how true is this statement -- ""It's a terrible time to buy when interest rates are low"?

Asked by RSW, Belmont, CA Mon Apr 6, 2009

A friend of my pointed out patrick.net to me. And on the front page, I read: "It's a terrible time to buy when interest rates are low, like now. Realtors just lie without shame about this fundamental fact. Prices fall as interest rates rise, because a given monthly payment covers a smaller mortgage at a higher interest rate. Since interest rates have nowhere to go but up, prices have nowhere to go but down. The way to win the game is to have cash on hand to buy outright at a low price when others cannot borrow very much because of high interest rates. To buy at a time of very low interest rates is a mistake. "

Any thoughts?

Help the community by answering this question:


Let's clarify one thing. You asked if it's a terrible time to buy when interest rates are low? The answer is no. If the cost of a home is the same in 5-7 years as others have said, would you prefer to buy when the rates go up with inflation going up as well? Of course not, it dosn't take a genius to figure that out.

You didn't ask if the value were the same in 7 years, you asked about NOW! No one has a crystal ball and can tell you where values will be. But, if you bought now and values remained the same and you were to get a 30 year fixed rate loan, you would be reducing your principal, and having a tax right off.

If you continued to rent, and values stayed the same in 5-7 years, what will you have accomplised? Nothing!

There are many factors that go into when is it a good time to buy. Supply and demand, interest rates, the economy, job markets.....But, if you look at the history of real estate, and I'm talking about going back 100-200 years, you will see that it goes up, then down, then back up again. I know it's hard to believe, but the market will come back.

Real estate isn't just about buying a home for a profit. It's about owning you own home, paying your own mortgage, having a nice tax right off, and eventually when it comes time to sell, hopefully your home has appreciated nicely.

Remember this, it's not about timing the market, it's about time in the market.

Richard, I could care less whether you buy a home or not, I'm trying to give you good advice that you buy low, and sell high, and if you need to finance your mortgage like most people, you might as well get the cheapest money available. Focus on finding the best home, and try and get the best possible price.


Dave Tap Tapper
Cashin Company

PS. Let's talk in 5-7 years and see where the market is then. I'm betting that it goes up and rates will too.
Web Reference: http://www.TeamTapper.com
2 votes Thank Flag Link Sun Apr 12, 2009
If you buy a $300,000 house today with a loan of 5% 30 year fixed, your payment is $1610.
Let's say 7 years later you want to sell for $300,000 and interest rates are now 9%.
The person trying to buy your house will have a payment of $2413 with 9% 30 year fixed rate loan.
On average, most people stay in a house 5-7 years.
To get the payment back down to an affordable $1610 per month, you would have to sell the house for 200K.
But after 7 years of payments, you still owe $275,000

Low rates sound great if you're going to live there until it's paid off.
Wait another year to buy, save another 20% on the price. Good Luck
1 vote Thank Flag Link Wed Apr 8, 2009
Yes, there is a point to the 'constant budget' scenario.
Consider your own habits. When fast food prices are low, you eat out more often, right? And when they're high, you stop eating.
Okay, that's an exaggeration, but the fact is, people need housing. So, if you could buy when the prices are lowest and finance when the rates are lowest, you could have the best of both worlds, right?
The two conditions rarely coexist, unless there is another force at work.

Imagine rates doubled overnight. Prices would eventually slide down to bring some truth to the constant budget theorem, although it is unlikely that every price would drop proportionately. The reason for disproportion is that every property has a story.
I bought at $350k -- I am not selling at $330k and taking a loss of $20k.
I bought 5 years ago at $200k and selling at $325k still nets me a boat-load of cash.
What really happens is the marginal winners drop out as rates rise, decreasing inventory (the first 'me'), which leaves only the ones with more equity, who make a little less profit. The banks wind up with a disproportionate share of the gain, as additional interest income ($25k in my second case) because the buyer budgeted as if it were $350k at the lower interest rate. The problem is that some sellers are just not dropping out. The banks have no choice but to sell. Some owners have no choice either.

In our current scenario, therefore, adding to inventories are the short sales, foreclosures and other distressed properties, which tend to keep downward pressure on the prices. So, while in normal circumstances we would expect lower inventory because sellers drop out when rates go up because buyers can't afford the payments, and conversely we should expect higher inventory as rates drop, sellers come out of the woodwork and a lot of buyers soaking up that increased inventory.

That's not happening. Even though rates are lower, buyers can't qualify for the loans like they could before. So, demand did not jump up. Worse, inventory is increasing not just because sellers think they can sell at a higher price for the same payment but because foreclosures and pre-foreclosures are flooding the market. In a market near equilibrium we would expect the constant budget theorem to work, but we're not in equilibrium yet. You have to think tactically as well as strategically.

Ask yourself: is there an excess of inventory or an excess of demand at these lower rates?
Demand isn't there. But because the supply side has gone up, where have prices gone?
Lastly, buy low, sell high. If prices are low, when do you buy?

Wow, I know somebody is going to fix the financing problems. Maybe it won't be perfect, but the point is that in the near future the excess inventory will be gone, financing will be easier on buyers, and do you really want to be one of 5,000,000 people trying to buy in that market? What do you think will happen to prices then (and interest rates)?
Web Reference: http://www.SumnerRealty.com
1 vote Thank Flag Link Mon Apr 6, 2009
I fogot to comment on your other quote. How many people can afford to pay cash? Not many.

There's an old saying, why use your money when you can use someone else's?

If you can afford to pay cash, you should be sharp enough to invest and get more than 4-5% on your money.

Dave Tap Tapper
Cashin Company
Web Reference: http://www.TeamTapper.com
0 votes Thank Flag Link Sun Apr 12, 2009
Your friend is outright wrong! Have him explain a little about how come it was possible for prices to be so high a few years ago when interest rates were much higher? Interest rates have dropped and so have the home prices and the economy is worse then back then as well. Don't these factors make a difference?

When the economy gets better and as inventory gets sold off as the market stabilizes your friend will be one of those folks that say, I should have bought when the prices and interest rates where low. Same thing with the folks that had the chance to buy yahoo, microsoft or google stock for pennies but passed on it.

The fact is you don't buy high and sell low, that is stupid. Any investor worth spit will tell you "buy low / sell high"

Be very careful about comments people make or the advice you follow by doing a little of your own due diligence, mysterious and anonymous characters who are regular real estate and Realtor bashers seem to operate on an unknown agenda "Found The Bottom!" & "Million$producer" seem to make posts at alarmingly fast speeds obviously not caring about the post or providing any factual data whatsoever other then realtor lie, always bad time to buy, save 6% not using a realtor even if your a buyer!!!

These people are ridiculous with their spam postings of realtor bashing in many cases of more then one post per minute. Just read their profiles to get a little insight on these folks mentality.

"Million$producer" 6.5% rates 2 years ago was a good rate people would fight to get, now with rates lowest they have ever been in history you and "Found the Bottom" claim it's bad to buy when you get a good rate because other in the future won't have those same low rates so won't be able to afford the house you'll be selling? That is just ridiculous, especially since home prices have dropped tremendously over the last two or three years.

These guys must have been on Obama's election marketing committee the way they twist the truth.

"Million$producer" said "So yes, it is true that Higher rates=Lower Prices."
So what's your point other then it's never a good time to buy?
We're now experiencing Lowest Rates in History EVER and Low Prices and you're saying it's still not a good time to buy because rates will go up eventually and home prices will need to drop again even when the economy gets better? How can you support those claims which have already been proven wrong by a little thing called HISTORY!!!!

This site is filled with hedge fund and stock market junkies + FSBO website owners looking to spread the word in any market that real estate is never a good investment, you should always rent or Realtors are liars or charge too much and you should never use one. People all I have to say is use your common sense when reading articles from these.... caugh...caugh... "people".
0 votes Thank Flag Link Wed Apr 8, 2009
I'd just to like to add a thought/question to the implied thought that the combination of the lowest rates ever combined with the lowest prices ever means you.........................

My thought/question is that is what 90% of the debate in the Forum is, isn't it.

Is this the lowest rates are going to go and is this the lowest Prices are going to go?
Plus the issue of what a buyer can TRULY AFFORD vs What they are QUALIFIED FOR by the current system seems to me to cancel any difference the Two (Rates/Prices) may make in many cases for Buyers.

What good is a 4% rate and a $50,000 house if you're qualifying people to buy it that can only AFFORD a $20,000 house at 0% interest? How many times do we still see the question "I only make X, I have no Credit, I want to buy that quarter of a million dollar house" and many show up with "I can make it happen"? The fact that he gets low rates, that the house cost $400,000 last week, does it really matter if the BUYER cannot afford the $250,000 house but is qualified to buy it?
0 votes Thank Flag Link Tue Apr 7, 2009
This argument is false logic. While prices of homes will vary somewhat by the cost and availability of money those are just two contributing factors to the larger supply and demand.
Basic economic theory is that whatever product is being sold will command a higher price if the demand is larger than the supply. While cheap money can contribute to the demand factors such as regional employment or income levels plus the build out of new housing have far greater affect on rising or falling prices.

When you have an "opinion" saying this is "the way to win the game" should always tip you off as a shuckster. To "win" look at the investment philosophy of the Rothschild family - Buy in bad times and sell in good times - - It hasn't steered them wrong over the centuries.

The way to win was by investing with Madoff. To Mr. Found the Bottom - Realtors will always say now is a good time to buy because it is our jobs to help those that buying or selling complete the transaction. It isn't because we don't have a clue you just need to - -get your head out of your bottom
0 votes Thank Flag Link Tue Apr 7, 2009
Jed Lane, Real Estate Pro in San Francisco, CA
Are you serious? If you feel Realtors lie without shame about this fundamnetal fact, then you should talk with investors or financial advisors! That statement couldn't be further from the truth. The best time to buy is when values are low, and the cost of money is cheap.

Whether rates are going to go up or down no one knows, but I can tell you that this are historic low interest rates. Just the facts, no hype.

You might want to invest in a book written by David Bach, he has written 8 so far and has been featured on Oprah. I just attended a conference with David and Wells Fargo. David states that there has never been a better time to buy in the last 3 decades.

Or, you can wait until the values and rates go back up along with inflation. That would probably be a better time, don't you think? Good question Richard. At least you got a lot of people to answer your question.

One other thought. Everyone makes money in an up market, but only a small few make a fortune in a down market. This is the time when investors make their millions!!!

Dave "Tap" Tapper
Cashin Company
Web Reference: http://www.TeamTapper.com
0 votes Thank Flag Link Tue Apr 7, 2009

Well as you can see there are differing opinions on the topic…

What I find at times is there is a very general brush stroke used. Now is a terrible time to buy, or now is the best time to buy. The reality is it may be a great time to buy for some and others not.

Unless you are an investor trying to time the market to make the most profit, then you need to look at your current situation and why you want to buy. Also you have to look at LOCAL markets. It really is different city to city, and even neighborhood to neighborhood. I live in Oakland, CA and you can right now buy a house for $39,000 to over $2 million. I am working with a buyer and we recently put in an offer on a house with 34 offers!

Yes typically prices do soften when interest rates go up. But we are not in a totally typical situation. As T.E.Summer mentioned in the post below, we have a unique situation where inventory is up and interest rates are low. Typically the inverse of this is true. I would also suggest you take a look at the different in the purchase price vs mortgage rate to determine if you are really going to save your self any money. Have you looked at the break point between price and interest rate in the areas you are considering to determine at what interest rate the reduction in price would offset the increase in interest rates? What if interest rates go up and prices do not go down? There is really no way to guarantee that it will happen that way.

The reality is none of us know when the “bottom” will hit or if we are already there. The only way we will now is when things start to change. None of us know the future. Not the Realtors and not the guys sending out the negative messages of the don’t buy now! mentality.

The best thing you can do for yourself is to sit down and really evaluate why you want to buy. And then you need to become familiar with the market where you are interested in buying, because it is different in different locations. Painting a broad stroke for every situation and every person seems like a very simplistic approach. Talk with a Realtor about what is going on in the neighborhoods were you are interested. Finding a good Realtor who is there to help you navigate the local laws, show you the statistics of the local markets, help you navigate the nuances of the local market as well as negotiate on your behalf. This will help you to make an educated deciison regarding your current situation. Why not have somone working for you?

The reality is Real Estate is a good long term investment. We all need a place to live, raise families, live our lives. You need to find out if buying right now is the right time for you and your situation so you can make an educated decision for yourself.

Hope this helps!

Lisa Cartolano
Alain Pinel Realtors
0 votes Thank Flag Link Tue Apr 7, 2009
There are websites on just about anything and telling you whatever they want to. Just because it is on the internet or in the paper or said does not make it true. Use your own logic to figure this out. REALTORS did not cause this present housing situation the bulk of the consumers did, by spending money they did not have. The government has jumped in to fix the problem by doing the same thing.
Interest rates are low, prices are low - if you wait until the prices go up, as a agent I will make more commission. Think about it!
Web Reference: http://topbrainerdagent.com
0 votes Thank Flag Link Tue Apr 7, 2009
I've never heard of such a thing! Wow. How's this one: Why pay cash when you can use someone else's money cheaper? Now is a great time to purchase because 1) interest rates are low and you can obtain a loan for less making your monthly payment the lowest they have been in years 2) foreclosures are high in volume driving the price of real estate so you can obtain more home for your money with a lowered interest rate 3) you can obtain a tax credit during 2009 for up to $10,000 on a new home and $8,000 on resale. It's really never been a better time to buy. Talk to an accountant or a financial planner if you have real concerns about cash flow. By the way, I am a Professional Realtor and I don't lie. No one is going to have that power over me - ever. Life is simply too good without it! Good Luck. Cindy Vedder, Prudential California Realty
0 votes Thank Flag Link Mon Apr 6, 2009
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