In my hometown, Boulder Colorado, total real estate sales were down roughly 15% in 2009.  This was on top of a 17% decline in 2008.  Obviously, buying and selling real estate wasn’t such a good idea in the minds of many people over the past few years.  The reasons varied from financial distress, to difficulty in obtaining credit, to paralysis by uncertainty.  Whatever the reason, many people put off the age old decision to leave the old nest and strike out for something new.

What has been largely ignored by the majority is that despite the slower market and difficult credit conditions, right now is a great time to buy.  Affordability is way up. Affordability is the measure of the percentage of take home pay required to buy a home.  In short it is the ability to afford.  When interest rates are low and prices are subdued, affordability is high.

Affordability is elusive.  It is only for those who dare to stick their necks out a bit to take advantage for the long term.  House prices been fairly stable and I don’t predict a huge change in values in 2010 (at least in Boulder County), but there is a very good chance that interest rates could increase substantially before we sing Auld Lang Syne at the end of 2010.

Here is what an increase in interest rates could do to the payment of your next home if you decide to wait.  If interest rates increase from 5% to 6.5% on a $417,000 loan (the conventional loan limit), the principle and interest would raise 17% or $397.  On a more practical level, a buyer would more likely not pay (or qualify) for the increase in payment and be forced to buy a less expensive home for the same money.  Using our example; if the interest rates increased from 5% to 6.5% a buyer would have to purchase a home $73,000 less to keep their payment the same.

Sometimes it pays to take a sacrifice on the front end to reap the long term benefits.  If you are waiting for the prospects of selling your home to get better don’t wait too long.  By the time you get the price you want on your house the interest rates and home prices will rise and you will be stuck in your second (or third) choice home.

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