Cars, clothes, and computers all lose value over time as we use them and as they age.  Houses, however, typically increase in value over time.  While we don't get upset about cars, clothes and computers losing value, it can be quite upsetting if our houses diminish in value.   Home values in Harrisonburg and Rockingham County increased through 2008, but then declined 5% in 2009, 3% in 2010 and are on pace to decline another 3% in 2011.  But in many ways, today's home buyers aren't too concerned if home values drop even another 3% through next year!

If you are considering purchasing a home today, you should be planning to own it for at least four or five years.  As was the conventional wisdom of the past (as recent as ten years ago), home buying often isn't a great financial move if you are only planning to own the home for one to four years due to the costs incurred through financing the purchase and then selling the home two years later.  The transactional costs of buying and selling are too high, from many people's perspectives, to make it worthwhile to buy a home for a short time period.  Thus, if today's home buyers are planning to own their home for at least four or five years, a small decline in value over the next year doesn't, or shouldn't, bother them too much.

Today's extraordinarily low interest rates make today's home prices a great value for buyers even if they could buy the home at a slightly lower price a year from now.  It will cost you $664 per month (principal and interest only) if you purchase a median priced home ($175,000) at today's mortgage interest rates (4%) with a 20% down payment.  If, a year from now, prices are 3% lower ($169,750), but mortgage interest rates are a half a percentage point higher (4.5%) you will be paying more for your house -- $678 per month.  With such low interest rates, today's home buyers who are looking for a great deal are buying now to get a great (fixed!) interest rate rather than holding out for a slightly lower home prices with an interest rate that is not quite as favorable.

Home buyers realize that improving their quality of life today is worth an extra dollar per day.  Even aside from the leveling impact of low interest rates referenced above, most of today's home buyers decide that it is not worthwhile to delay buying and moving into the home that they love just to try to get a slightly lower price one year from now.  After all, a mortgage payment on a median priced home ($175,000) will only decline by $25 in the next year if median prices decline by another 3%, assuming a 20% down payment, and a mortgage interest rate of 4% both today and a year from now.  For most people, this potential cost savings of $25 per month isn't substantial enough to delay a home purchase and to live in a less than ideal situation for the next year.

If you're looking at the real estate market and wondering if you should keep waiting to buy a home because home values might decline over the coming year – just assume that they probably will.  But then consider that the many home buyers who are taking action today are seeing beyond a slight decline in home values over the next year.  They recognize that they are in it for the mid to long term, they don't want to miss out on today's low interest rates, and they don't want to delay improving their living situation.  Carefully examine your housing situation and finances, because if you will be buying a home within the next two years, it might make the most sense to buy it in the near term, even if home values decline a bit further after your purchase.

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Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com