Better to buy a home when rates are high?

Quote from Alpha13 : Since home affordability is directly linked to interest rates... And you can change the rate (refinance to a lower rate) but not the purchase price of the home.... Isn't it better to buy when interest rates are high? Say 8-10%? This way you buy when prices are crunched relative to the mortgage payment, and then refinance down when rates are lower (doesn't have to be any time soon though. I'm not suggesting some dangerous speculative play) I've been pondering this for the last few days and would appreciate any insight... thanks!

How long will the interest rates be 8-10%? Just model out your assumptions in excel. That will give you an answer.

Quote from Alpha13 : Since home affordability is directly linked to interest rates... And you can change the rate (refinance to a lower rate) but not the purchase price of the home.... Isn't it better to buy when interest rates are high? Say 8-10%? This way you buy when prices are crunched relative to the mortgage payment, and then refinance down when rates are lower (doesn't have to be any time soon though. I'm not suggesting some dangerous speculative play) I've been pondering this for the last few days and would appreciate any insight... thanks!

No, its better to buy when prices and interest rates are low, like right now.

Quote from PiratesSayARRR : How long will the interest rates be 8-10%? Just model out your assumptions in excel. That will give you an answer.

that's the catch - what you gain in value loss can be offset by increased interest very quickly. You'd also have to add in costs for refinancing.

The only loss I see is in the refinancing cost. Otherwise the carrying cost of the loan is the same because that is what I base the purchase around

Quote from General Ghoul : No, its better to buy when prices and interest rates are low, like right now.

False. Given that your monthly housing payment will stay the same. At a lower interest rate the home you are buying will be more expensive. In this case should market conditions change against you, the value of the home will decrease. Buying when interest rates are high typically means the principle on the homes have decreased or are low and therefore you are less susceptible to market conditions.


Given the current market place the interest rates have more upside potential than down. Which means that likelihood of home prices dropping is high.
Buy when high.

Quote from Alpha13 : The only loss I see is in the refinancing cost. Otherwise the carrying cost of the loan is the same because that is what I base the purchase around

Assuming that the home's price drops to cancel out the extra interest.

Quote from thechainrule : False. Given that your monthly housing payment will stay the same. At a lower interest rate the home you are buying will be more expensive. In this case should market conditions change against you, the value of the home will decrease. Buying when interest rates are high typically means the principle on the homes have decreased or are low and therefore you are less susceptible to market conditions. Given the current market place the interest rates have more upside potential than down. Which means that likelihood of home prices dropping is high. Buy when high.

It's not necessarily the case. You make the assumption that the decline in value will make up for the amount in interest payments. I can model it both ways.

Surely. I guess everything is at the mercy of the bond market right now.

should be very easy to estimate; variables are the purchase price (e.g. loan amt, assume 20% down to simplify things) and "future" rate. You should be able to run a bunch of scenarios where you vary both and see where parity is achieved (if at all) or what your g/l would be X years out. Then, see if the risk is worth it. To me, too many variables to hang your hat on anything.

I just ran a scenario.

House Price: $700K
20% Down
Interest 4.75%

Total over 30 years with Property Taxes Came to be $1.335M

Second Scenario:
House Price 15% less than above
20% down
Interest 10% for first 7 years, then refi at 4.75% over 30 years
Total with Prop Taxes: $1.345M (or somewhere there about as I am recalling from memory now)

If the refi was paid off in 23 years the total would amount to $1.333M, which is $2,000 less in the above scenario, however your are throwing away cash closer to the present value to you probably come out ahead in the first scenario that I ran. Although you benefit from the large tax write off.


I didn't factor in closing or refi costs. I'm in the State of California and prop tax is assume 1% with annual inflation of 2% for property tax (Thank you Prop 13).

Quote from Alpha13 : Since home affordability is directly linked to interest rates... And you can change the rate (refinance to a lower rate) but not the purchase price of the home.... Isn't it better to buy when interest rates are high? Say 8-10%? This way you buy when prices are crunched relative to the mortgage payment, and then refinance down when rates are lower (doesn't have to be any time soon though. I'm not suggesting some dangerous speculative play) I've been pondering this for the last few days and would appreciate any insight... thanks!

I thought of this back a few years ago during the boom yr but I could not find the right answer. If the rates go up, the prices will come down but if the rates go down, the prices could go up in a normal market. With the crap RE market today, it's all about timing. Find the homes you like and make an offer. At the current rate the economy and govt are going, the rates will stay low for another year but home prices may fluctuate depending on your market. Detroit, AZ, Vegas, Florida may still go down but other cities are rebounding with the inventory of bank owned and short sales starting to ease. If you wait until the interest rates rise again towards 5-7% range, the market might have already started the recovery and what ever you think you might be saving could be canceled out by the uptick in the market.

Plenty of folks bought homes at market value in 1996 / 1997 when the going rate was 8% for a 30 year mortgage and the value dropped so much the last 5 years that if they wanted to refi now they would still have to pay down their principal for a conventional, no PMI loan.

Dont forget some people who reup their 30 year mortgage even though they have paid into it for 5 years or so.

"Wow I sure am saving a lot monthly on this!"