Ok, let's just look at mortgage rates and analyze what is happening. Thirty-year rates are currently 3.75% on a national basis, which is still low by historical standards. (See the following chart on 30-year mortgage rates.) Now, let's look at a conventional $200,000 loan for 30 years at 3.75%. This produces a P&I of $926. How much house does $926 buy if rates go up to 6.36%, which was the 30-year rate as of October 2006? [Why am I asking how much home does $936 buy? Well, usually when individuals buy a home, they are concerned about what the monthly payment is going to be.] Ok, the answer is $150,268. So, you think housing has "bottomed? Not so fast. See, you have an imputed approximately 33% valuation increase in the price of houses today that will, over time, decline when rates rise. In other words, just like bonds, when interest rates rise, prices decline. Therefore, the time to buy that house is when rates are historically high, not low, because then when rates go down you get the imputed price increase. (This is your financial tip for the week.)
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