HomehousingI'm not a weatherman, but I have a forecast.

I’m not a weatherman, but I have a forecast.

We were out to dinner with some good friends (a married couple) last night and we started talking about life. They will be moving back to Washington this summer, after spending the last three years in Virginia. We naturally discussed where they would live, which then snowballed in to a conversation about housing in general.

As I’ve discussed many, many, many times before, Girl Ninja and I have been directing a good chunk of our discretionary income towards our savings account each month. We would love to have $100,000 in the bank before we buy a house (don’t know if we will actually wait til we get there, but it sure would be nice). I know $100,000 seems excessive, but that’s exactly why we want to do it. The more we have in savings, the less strapped we will be when we put 20% down. You call it excessive, I call it responsible 🙂

While Girl Ninja and I wouldn’t even be in the market to be homeowners until April 2012 at the earliest, it’s never to soon to start planning. I feel like we have a pretty good handle on the “planning” side of things, but the “predicting” aspect of real estate is a whole new territory for me.

The housing market bubble burst in 2007/2008. It dropped hard and fast for a long, long time. Over the last 12 months, however, it’s remained pretty steady  and in my opinion is probably pretty close to a bottom (if not already there). Houses and neighborhoods that were completely out of the question for us four years ago, are not only a possibility, but could be a reality.

So the dilemma is this. With our current savings stash, we could theoretically buy a house tomorrow and put a reasonable percent down. The only thing we need to do now is make some predictions on the housing market. That way we can figure out if we should buy tomorrow, in six months, a year, or three years.

Here are some of the things I’m predicting….

  • I believe house prices in the greater Seattle area are at, or near, the bottom.
  • I believe house prices will remain relatively stagnant for the next five years, give or take a few. Basically, I don’t think house prices are changing much in the near future.
  • I don’t believe interest rates will be going much, if any, lower than they are currently. Four percent is about as sweet as it will get.
  • I believe interest rates will stay under 5% for another 6 to 12 months, but after that we could see some significant corrections (rates hovering closer to 6%-8%).

I feel like I have a decent perspective on the first three bullet points, but the last one is what really stresses me out.

How long will interest rates stay low?

The interest rate on your mortgage plays a significant part in whether or not buying makes sense. The monthly payment on a $300,000 loan at 4% (over 30 years) is $1,432. Take that same loan, but with a 6.5% interest rate and your monthly payment balloons to $1,896. That’s $464 a month more! For the same freakin’ house!!!! People like to say renting is just “throwing your money away“, but a mortgage with a moderately high interest is no different.

Long story short, if Girl Ninja and I want to buy a home in the near future (which we think we do), we probably don’t have more than a year to get the best deal possible. If we wait too long, interest rates are surely going up, and we may not be able to afford anything worth buying. So my question(s) to you reader is this….

How long do you think interest rates will stay sub 5%?

When they do go up (which they will) do you think house prices will drop further to compensate or be able to hold steady because the market is picking up steam?

Do any of your predictions significantly differ from mine? If so, which ones?

Is anyone even reading this or are you all on extended vacation between Christmas and New Years?



  1. I honestly think that no matter what the housing market looks like, you and GN are going to succeed at getting the best deals and the best rates possible. Frankly, though, I think that your plans for having a lot of dough stashed in the bank beforehand is really smart and that you’ll have no troubles in negotiating some sweet deals because of the flexibility that the cash offers. And yes, I’m still here during the week between Christmas and New Year’s. 🙂

  2. I’m struggling with all of this right now. Boy & I are wanting to buy, because rates are about 3% for a 3 year fixed right now. I think 5 years fixed would be too long, because I’m not sure that in 5 years the interest rates will be reasonable – I think they’ll definitely go up, as you mentioned. I couldn’t imagine house prices in Vancouver getting any lower – they actually didn’t really decrease during your guys’s recession, but they are still probably not going to be decreasing any time soon – I’m just scared if they go up!

  3. Given that the Fed said (about six months ago) that it wasn’t planning to raise interest rates for the next two years, it’s unlikely you’ll see a surge within that time. Once you have your 20%, you might as well buy within a year or so after, so there’s no harm in starting to look now. And you don’t necessarily need to buy a $300K house; you can get a smaller and cheaper starter house or even a condo, and then upgrade if the family grows. But there’s no absolute right or wrong here; I’m sure you’ll exercise good judgment no matter what you decide.

  4. Larry hit the nail on the head. The Fed has said it would keep rates low until 2013. As far as the market in your area I have no idea what it is going to do. Here in Indianapolis, it has been pretty steady the entire time. The only homes that really lost “value” where the McMansions that were built in the expensive sides of town. My house has pretty much stayed at the same value give or take $2k.

    I do think, in general, Americans are spending too much and buying houses that are too large. People forget it can cost a lot of money to heat and cool a 3000 sq-ft house (property taxes also tend to be higher). I’m sure you’ll make the right decision, but I would probably start looking middle of the year if I was seriously considering purchasing a new home

  5. You should talk to a realtor. They have home price surveys and can tell you the state of the local market.

    I forget if you are a USAA member, but they have a program called MoversAdvantage, where you get a USAA certified realtor and a bonus when you buy a house w/ them.

  6. We locked our 30 year rate at 3.75% about 45 days ago(we just closed on our house a week ago). I know rates are already a little higher than that now. We initially were going to wait until summer to buy a house but with interest rates so low and the fact that most people don’t close on houses in December pushed us to up our timeline. They needed to sell, and we weren’t competing with anyone (and we live in a city with a fairly healthy real estate market). We just knew the time was right for us and I suspect you guys might find the right house sooner than you think, in your price range and you’ll both be in a position to pull the trigger and buy it.

    You can only speculate so much but if you think prices have bottomed out, you might want to consider making a move.

  7. I feel like the interest rates will remain below 5% for quite a while, the economy is still in bad shape so any hike would hurt it. I used to think that the low interest rates have inflated housing prices, but lately I’ve noticed that home sellers will only sell at a certain price no matter what interest rates are at. Of course it helps that most of the home sellers in Las Vegas are the banks and do not have a real incentive to sell a home at a low price. They can afford to wait for a better offer to come around. The amount of cash buyers here is ridiculous too. In regards to interest rates rising, I don’t think that should concern you to much considering you have the discipline to destroy debt regardless of how high it is. It would be worse if you based your purchase on what the interest rate is at the moment. At least the interest is deductible 😛

  8. How long do you think interest rates will stay sub 5%?

    At least until 2013 – Maybe even deep into 2014. It might creep above 5% before then — but I think the true correction will be in 2014-2016

    When they do go up (which they will) do you think house prices will drop further to compensate or be able to hold steady because the market is picking up steam?

    When interest rates do go up — Housing will take a giant hit. I currently own a home appraised at 160k with 117k on the note — I think the home would easily lose 10-40k if interest rates went up to say — 6.5-8%

    Do any of your predictions significantly differ from mine? If so, which ones?

    I predict you are going to be shocked by taxes and their yearly increase :p Housing took a haircut, but tax collections really didn’t.

    Is anyone even reading this or are you all on extended vacation between Christmas and New Years?

  9. I agree with your forecast! If you see things change you can move accordingly, but you are approaching it well. Good luck.

  10. Last week, my wife and I locked in on a 30 year FHA mortgage at 3.75% I talked to multiple people about that rate, and all pretty much said that this is about as low as it will go because it’s not really even worth it for the banks at this point.

    The fed has stated they’re going to keep rates low throughout 2012, so you’ll have that at least. For home prices….I dunno. We pulled the trigger because we’re ready to move and settle in, we’re tired of paying rent, etc. They might drop more, they might not. There’s no way to tell for sure.

    The news outlets will say there’s more to give because of all the foreclosure inventory. However, in the same breath, they talk about how the on-the-market inventory is so low.

    If you’re ready financially, and both you and GN are comfortable with your jobs, go for it!

  11. Well one thing in my mind is that under 5% on interest in pretty low, when we take out a mortgage i believe it is best to get a fix rate to lock in the low interest rate we have right now. The reason we are having lower interest rate is that we are having a recession, if inflation kick in in the future the interest rate should be increasing. If you can afford a house buy it now don’t ever try to time the market because who knows tomorrow will be.

  12. Just because I think rates will stay low for the next year, doesn’t mean they will. I would strongly consider jumping in now because the interest rate will be the biggest factor in your payment. When rates do go up, I don’t think housing prices will decline to compensate, either.

  13. I think your predictions are just fine.

    I don’t think housing prices will drop when interest rates go up, at least not in the moderately priced houses. If the economy is that weak then rates won’t be going up.

    Be careful about trying to time the market. buying a house is much too important to get too carried away with timing and rates. Make sure you know what kind of house you want. Know the neighborhood, style, price range, etc. Find a good realtor. Get lots of opinions from lots of people and talk to lots of realtors before settling on one. Who your realtor is matters a lot. Then let your realtor know what you are looking for, be very specific, and be willing to wait for what you want. Now is a great time to just sit back and let the right house come to you. Next month or next year isn’t what matters most, it’s whether the house is right for you. Location, location, location, get this right and the rest will be easier. Also don’t go too large or too small thinking you will “make due”. You can and should be picky.

  14. Rates wont jump from 4-6.5% overnight, that could take years to happen.

    Once you are ready to buy, you lock your rate in for X amount of days, usually 30-90.

    This is an election year and there are a lot of tax implications that are undecided (mortgage deduction, payroll, flat tax) so I personally dont think houses are going to recover for this year and possibly into next. If Obama is reelected, you may even see another dip if he continues on this course.

    You seem to be patient and think big picture, you can wait and keep stockpiling.

  15. […] I’m not a weatherman, but I have a forecast. […]

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