Mortgage News

Mortgage news & commentary from Lou Perrotta, CPMB

Weekly Commentary for January 17, 2011

This week, I want to address the question I receive most often:

“Lou, is this the right time to buy a new home?”

It is usually followed by ‘They say mortgage rates are about to go up (or down)’ … or … ‘They say the residential real estate market is about to take off (or stall)’.

Well how much weight should you give the predictions of pundits when deciding if now is the right time to buy a new home?

I know that whenever I’ve visited my crystal ball – it’s always been cloudy, but since we are at the start of a new year, let’s look at the predictions that one respected prognosticator made in 2010 about residential real estate markets and interest rates.

Well that’s good news, but a bit different from the prognostication of just six months earlier.

Here’s what this teaches me …

Forecasting what the mortgage and real estate markets will do is more of an art than a science. Even the best intentioned fact-based analysis is at best a good guess.

I wonder about the usefulness of predictions, estimates, projections and the potential harm that they cause.  Prognostications are everywhere.  They’re in weather forecasts, economic forecasts, financial statements of public companies, government spending projections, interest rate patterns and housing prices, to name a few.  Entire industries exist to service consumers’ desire to know “what’s going to happen tomorrow”?

Here’s my concern …

People make important decisions based on the opinions and predictions of others.  How absurd is that?  Doesn’t it make more sense to base your decisions on your needs, your opportunities, your financial capabilities, etc?

Should you delay purchasing a home because a newspaper article says that interest rates may rise?  What if they don’t?  And if they do rise, do you want to delay the purchase until you are absolutely forced to buy, but interest rates have increased 2 or 3 times?  What if the price of houses also increases?

Here’s my conclusion …

If you need or want to buy a house … BUY IT … but only if you can afford it at the interest that prevails when you need or want to buy it.  Forget about the soothsayers! Affordability is the real question to be addressed. Speculating based on other people’s forecasts is not a sound approach.