Buyer's Market: Dive In!

A great opportunity awaits buyers in 2009. The perfect combination of lower prices, lower interest rates, and substantial inventory has come together to create values that we may never see again. Prices are down 25 to 40% from their high in the summer of 2005. Fixed interest rates have fallen below 5% on conforming-rate loans. Additionally, the moratorium that Congress imposed on lender foreclosures over the holidays will gradually be adding to the already ample inventory in 2009. These changes can create a dramatic benefit for a buyer.

Let’s compare buying the same home in 2005 versus 2009 with a similar loan program. Assume the purchase price of a home in 2005 was $800,000, with a 20% down payment. The interest rate for a 30-year, fixed, jumbo loan would have been 6.5%. The monthly payment for principal and interest would have been $3,467 per month. The same home today, down 33% in value, would be $536,000 . The interest rate, with a 20% down payment, would be 4.75% for a conforming, 30-year, fixed-rate loan. The monthly principal and interest payment would be $1,698. The 2009 monthly payment is less than half of the 2005 payment. If you were to stay in the home for 30 years and pay off the loan, you would actually pay $636,840 less in principal and interest, compared to a 2005 purchase. Oh, by the way, the down payment in 2005 would be $160,000, while in 2009, it would only be $108,000...and yes, the property taxes would be 33% less, too.