Is now a good time to buy a house?

July 8, 2008

Up until a few months ago, I was recommending everyone looking for a house to wait because prices would still drop.

While I still believe house prices will continue to drop, I have changed my mind regarding waiting to buy a house.

This article from CNN Money echoes my thoughts.

House prices will probably keep dropping. Unemployment keeps rising. Credit is harder to get. Foreclosure numbers keep increasing. There are just too many factors contributing to a higher supply of homes, which eventually causes prices to drop.

So why did I change my mind and think this might actually be a good time to buy a house? Because while prices might still keep dropping, there are a lot of good bargains out there. And more importantly, because interest rates are low now, but probably not for too long.

As the article mentioned above states, interest rates are likely to rise in the near future. With oil prices reaching new highs ($140 a barrel as of June 26th), inflation has become a real, real worry for the Feds.

With oil at $140, inflation is not just a US concern anymore, but also for the rest of the world. China will have to raise their prices, so no more cheap toys for us. Vietnam will have to raise their prices, so no more cheap clothes for us. India will have to raise their prices, so no more cheap outsourcing work to them.

It is very likely that the Feds will raise interest rates in Q3. So if even if you end up paying a bit more for the house, at least you can afford it now, which might not be the same case with a higher interest rate.

So do the math. If you can afford a house with a 30 year fixed rate, consider it.

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