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Time Magazine Wants You to Buy a House Now!

Ignore the Headlines! says Time Magazine (Feb 25 '08), because there's "a potent case for buying now." Here is the case against waiting to buy, according to Dan Kadlec:

First, you take the case of buying a $218,900 house right now, with a 20% down payment and a 5.5% 30 year fixed. Then, you assume in 12 months prices will drop another 10%, and the fed bumps up the interest rate, giving you a hypothetical $197,010 house, 20% down payment, 6% 30 year-fixed deal. Let's put it up as a chart:

PriceDown PaymentRatePayment
$218,900$43,7805.5%$994.31
$197,010$39,4026%$994.94

So, Dan Kadlec and data say that you "would have saved nothing and spent a year living someplace you'd rather not be." (emphasis his) Numbers that at least give pause for thought, if you were thinking of buying. But wait, this isn't quite the table as printed in Time, I added the down payment column to show some magically disappearing money. Dan assumes that the family has a 20% down payment each time, which means that somehow in the space of a year, four thousand dollars vaporizes. But we've a worse problem, Dan's math is wrong! Here's the table done correctly:

PriceDown PaymentRatePayment
$218,900$43,7805.5%$994.31
$197,010$39,4026%$944.94

His point isn't looking so strong now. The average family is saving 50 dollars a month, which is a significant savings. Let's add that missing $4k into the down payment, too, for the final comparison:

PriceDown PaymentRatePayment
$218,900$43,7805.5%$994.31
$197,010$43,7806%$918.69

Looks like a pretty good case for waiting, by his own (corrected) numbers.

Edit: Mr. Kadlec corrected the math in his article, but to preserve the point shifted his assumptions; He now assumes a 6.5% interest rate a year from now. This translates to a $994.94 mortgage payment, so once you correct for the missing down payment buying now STILL wins out. On top of that, mortgage rates jumping by 1% over the next year seems like an unreasonable assumption. If anything, I think we'll see strong downward pressure on interest rates as we try to energize the housing market.

Comments? E-mail me at: "me" at this domain (adammarquis.com). Home