I always want to cut to the chase with some figures. The following table shows the monthly payment for each loan amount and interest rate.  A buyer today at 5% interest borrowing $100,000 has a monthly principle and interest payment of $536.82.  If prices deline 5% (and the loan amount does also) and interest rates rise just 1/2 of 1%, then the monthly payment remains almost the same ($539.40).

So if rates go up just 1% to 6%, then prices must drop at least 10% for that same buyer to qualify for the same monthly payment.  Check out the link below:

interestratevspricing0001

The point being is that if you believe that much of the price decline has already happened and you anticipate interest rate increases…and you should.  Why?  Because interest rates are the lowest in recorded history.  But, also at some point, the Fed is going to have to start recouping some of the intense borrowing that has happened to attempt to “jump-start” our present economic slump.  I definitely do not pretend to have the answers, but do have lots of questions.  All the same, the numbers “speak” to me.

Existing nationwide home home sales increased in February, reversing losses in January.  Of course, the January figures could have been heavily influenced by weather!  However, overall sales are still soft.  The first-time home buyer credit is motivating a lot of buyers to come to the marketplace or come back to the home-buying market (remember if you have not owned a home for 3 years, you are considered a “first-time home buyer”).  I do believe there is a lot of “pent-up” buying energy out there, as many buyers wait for the “bottom of the market”.  Timing the bottom of any market is very difficult!  It’s like a tennis ball picking up speed as it falls towards the earth, and then “boink” it hits the ground and is on its way back up before you can “take a swing”.  You can only be certain where the bottom of any market lands as that market picks up momentum!

Lawrence Yun, NAR chief economist, said first-time buyers accounted for half of all home sales last month, with activity concentrated in lower price ranges. “Because entry level buyers are shopping for bargains, distressed sales accounted for 40 to 45 percent of transactions in February,” he said. “Our analysis shows that distressed homes typically are selling for 20 percent less than the normal market price, and this naturally is drawing down the overall median price.”