Andre's Blog

Sure, housing's in a hole. But there's a potent case for buying now. There has rarely been a moment in history when you couldn't scare yourself into doing nothing. When prices are falling, few people have the discipline to buy stocks, a house, gold, art or any other asset. But those who do pull the trigger excel in the long run. As John D. Rockefeller famously said, "The way to make money is to buy when blood is running in the streets."

And the streets are stained crimson. Housing, certainly some skepticism is in order. Formerly sizzling markets in Florida, Nevada, Arizona and California probably haven't seen the worst headlines just yet, though they may well be close. And "jumbo" mortgages, those more then $417,000 are likely to remain artificially high for a few more months while banks work through their credit issues.

But let's say your're emotionally ready to be a homeowner. You have good credit, plan to stay put for five years and have been waiting for the perfect entry point. It's time to get serious- before an inevitable rise in interest rates wipes out your advantage. The thing that will make home prices stop falling is the very same thing that will push mortgage rates higher. So anything you gain by a further drop in prices might be offset by rising financing costs.

Consider a typical home that sells for $218,000. You put 20% down and get a 30 year fixed at a mortgage rate of 5.5%(yes they are still around: www.jshambley.apexlending.com). Monthly principal and interest come to $994.31. Let's say that same house goes for 10% less, or $197, 010. But by then the recession is history and the Fed is jacking up rates to stem inflation. If mortgage cost rise just half a point, to 6%, your monthly payment would be $994.94 and you'd have SAVED NOTHING! Meanwhile, home prices might steady and sellers might become less willing to negotiate. And you have spent a year living soemplace you'd rather not be.

It's more complicated if you must sell before you can buy. But that logjam won't persist forever- and if it appears you'll be trapped for a few years, try to refinance at today's lower rates. Risks always seem most acute when the headlines gives you ulcers. But that's exactly when you should think ong term adn get off your thumbs.