I’ve had quite a few enquiries from people who are nervous about waiting until the market goes down and are afraid (scared by media hype) that they’ll miss out if they don’t dive in now, especially as interest rates are at a record low.
The first thing I tell them to do is to calculate how their repayments will be at 3, 4 and 5% ABOVE the rate they’re being quoted today. If that scares them, they’re not in a position to buy. I also tell them that if interest rates do rocket up by 5% in the near to medium term, the valuation of their property will plummet and they’ll be faced with owing the lender more than the place is worth.
Considering that house prices, up until about say 2001 when the madness started, kept rising roughly with inflation, the following tool, from the Reserve Bank of Australia, is useful.
Click here – http://www.rba.gov.au/calculator/annualDecimal.html
I was selling a range of standard three bedroomed houses in a particular area in 2002 for around $200,000.00. Go to the calculator and enter $200,000 and the year 2002 and then ask it to give you the adjusted price for 2012 (2013 not available yet). You’ll see its about $263,000.00
NONE, I repeat NONE of those homes have sold for anywhere near $263,000 in the last 5 years BUT the prices are heading that way. At the peak of the madness, some changed hands for $445,000. They are now selling around $350,000.00 and my wee spies tell me there are sellers out there who NEED to unburden themselves, and because they bought in 2002 for $199,000.00, would take $250,000.00 if push came to shove.
The correction we HAVE TO HAVE is coming. If inflation takes off in the USA we are doomed…