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Buy now or regret later?

Posted by Scott Van Voorhis March 21, 2013 07:06 AM

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No, this isn't the latest public service announcement from the National Association of Realtors.

Rather, Redfin, the online brokerage and data firm, lays out out a detailed financial case here for why it makes sense for homeowners looking to move up to do so now, rather than waiting a few more years. There's also a handy move-up calculator as well.

Sure, Redfin wants more homes to sell, but at least it is trying to make a case other than spouting a simple sales line.

OK, if you sit and wait out the current market another five years, the value of your house will surely go up.

But so will the value of all the other homes out there that you might be interested in buying.

That, plus rising interest rates, will make buying up later, rather than now, a pricier proposition.

And that's even if you take into account the larger gains you will likely net for your current home if you sit things out and wait for prices to rise even more.

Even the size of your down payment is likely to rise. Or so says Redin, anyway.

"if you're selling one house just to move up to another, it does you no good to wait for prices to rise - the price of the move-up home will increase faster than the price of the place you're leaving behind," said Redfin CEO Glenn Kelman in a press release. "But waiting until interest rates rise is what can really cost move-up buyers, because most economists believe that rates at some point will go back to historical norms, well above 5%. This means that most move-up buyers are likely to be trading in a low-interest loan on the old place for a higher-interest loan on the new one. In this scenario, the only winner is the lender."

To make its case, Redfin lays out a basic scenario involving a homeowner with a $200,000 mortgage looking to sell his or her house now for $250,000 this spring.

Homeowner X, as we shall call him or her here, wants to move up to a $340,000 home.
Factoring in today's still low 3.75 percent interest rate, that new house will cost $1,417 a month in mortgage payments.

But if Homeowner X opts to wait five years, his dream home will have risen in price by nearly 20 percent, to $404,000. Interest rates will also likely be higher - anywhere from 4.4 percent to 6.5 percent.

That means a monthly payment of anywhere from over $1,500 a month to nearly $2,000, depending on how high rates go.

Of course, the pickings are pretty slim right now, with the number of homes on the market in the Boston area down about a quarter from a year ago. And as prices rise, more sellers may jump into the market.

That's an important consideration - maybe, just maybe waiting will yield you a better home, even if you have to pay more.

Yet I am not so sure that we will ever see, at least in the foreseeable future, a big upgrade in the quality and variety of homes for sale in perpetually price inflated Greater Boston market, You have to go all the way back to the 50s and 60s to find a time when single-family homes were being for middle-income families, and in the more affluent communities, many of these homes are bearing torn down to make way for hideous, big box style home construction.

Our NIMBY culture and snob suburban zoning effectively bars anything from getting built other than McMansions.

Unlike other markets with more land and less restrictive zoning rules, we can't bank on a flood of new housing by builders responding to new demand.

What you see out there is pretty much likely what you'll get, whether you decide to go house hunting this spring or wait another year or two.

In the end, it all comes down to whether you are ready to move up or whether it makes sense for you and your family.

Redfin has made its case for moving up now. What's your take?

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About boston real estate now
Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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