Buying

This is Viktor Frankl.  He wrote a book called, “Man’s Search for Meaning”, which in my opinion is one of the greatest books ever written.

Frankl spent years in a Nazi concentration camp, and to sum up this brilliant book in a sentence, the lesson he learned through all the torture and horrible treatment was this…

“With a strong enough WHY, you can endure any HOW.”

More on this at the end of this post.

Right now, there’s a lot of concern out there about interest rates, and there’s a frenzy by some buyers to “get in before the rates go up”.

That’s a pressure technique called scarcity, and I’ll show you why, in most cases, it’s bogus.

So imagine this… you buy a home for $300,000, and your interest rate is 5%.  Mind you, the rates right now are better than that, but bear with me for my example.

Your monthly payments in this example would be $1,504 per month.

Historically, what happens is when house prices go down, interest rates go up… and vice versa.  They have an inverse relationship.

The most likely scenario in the next few years is that house prices will stabilize, or perhaps even go down.

So let’s imagine that they go down by 11%, which means the $300,000 house you are looking at buying at some point in the future is now worth $266,000.

That’s awesome, right?  You can pick it up for $34,000 less than today!  Do a happy dance!

One more thing… your interest rate just went up to 6%.  House prices go down, interest rates up.

So the house went DOWN by 11%, and your interest rate increased by only 1%… that’s not so bad is it?

Well…

Your monthly payment on a $266,000 purchase with a 6% rate?  $1,503 per month.

You just saved a dollar my friend.  🙂

Don’t mind me, I’m just joking around.

But it’s true.

Interest rates and prices are inversely related.  When one goes up, the other goes down.  What matters the most is your monthly payment.

… and no matter what happens with prices and interest rates, the monthly payment generally stays pretty constant, usually increasing at the rate of inflation.  That’s the natural balance point of the market.

Whether you buy this year or next year, it will cost you about the same per month.

What happened in some parts of the U.S. is that the monthly payments escalated too fast – and it prevented the regular folks like school teachers, nurses and factory workers from buying homes.  The bottom fell out.

Obviously there are some other factors to consider.  I’ll cover those in future posts.

One more time…What if we drop the house price to $238,000 with a 7% rate?   $1,504 per month again!

That’s a decrease of 21% in value, with a 2% hike in interest rates.

So don’t sweat all the media reports.  When the newspaper people gather around in their big boardroom, do you think they ask, “How much truth did we report on this month?”  NOPE.  They ask how many newspapers they sold.  Same goes for TV – that’s their benchmark for success.

Have a plan, and a crystal clear reason why you’re buying the home… start from there, and then see if you can achieve THAT in today’s market.

Viktor Frankl has been teaching this lesson for over 70 years… your “why” is the most important thing you can figure out in the home buying process.

Obviously, you want to think about some other stuff, but for the most part, I can tell you that most of it is just a distraction.

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