Rates still historically low, but how much you pay for the house still matters.

While none of us have a crystal ball, the smart money says that interest rates that have been rising over the last few months will continue to go higher and higher. An environment where rates are rising will almost certainly put downward pressure on housing prices.

The question still remains, is this the best time to buy a house?
The answer could be both yes and no.

If you’re considering buying a house today and you find that perfect house that you and six other “would be” buyers just have to have, you could be asking for trouble down the road by participating in a bidding war today. While it’s true that rates are still historically low giving you “buying power,” what happens five or so years from now if you make an offer that’s $25,000 or $30,000 above the asking price because this is the house that you can’t live without?

Here’s one scenario… Suppose you bid $300,000 for the house listed at $275,000 and you get it. You have a $50,000 down payment leaving you with a mortgage amount of $250,000 and a very attractive interest rate of 4.875%, and a monthly principal and interest payment of $1,323.

Now just for conversation purposes, let’s say that the artificially low rates of 2013 along with a national debt that’s growing more than a billion dollars a minute lead to double-digit inflation five or six years from now, and we see rates reflective of the late 1980’s which were around 10.99%. What’s the likelihood that the house you overpaid for five years earlier is still worth $300,000? In-fact, it may not be worth the original asking price of $275,000. At 10.99%, if someone offered you the same amount that you paid for the house, their principal and interest payment on a $250,000 mortgage would be $2,378, yikes!

In all likelihood, you’d be receiving offers far below what you paid for the house under this scenario and that decision to overpay for the house would just add to your loss, if you wanted or needed to sell the house.

One more question comes to mind…Is this likely to happen? Who knows, but it has happened before.

The bottom line… Although today’s low rates can get you more house for your money, the purchase price is still important to your long-term financial well-being. Look for the right opportunity, but don’t let yourself get caught up in the emotion of the moment. It may not seem like it at the time, but the right house at the right price will come along.