A real estate window of opportunity

Editor's note: This is Part 1 of a two-part series. Read Part 2.

If you are a first-time buyer who has been trying to decide whether to buy your first home, this could be the right time for you. There is a window of opportunity that may be closing soon for some buyers, and here are just a few indications of how the market may be properly aligned for you right now:

1. The lowest interest rates since the 1950s
Interest rates are close to all-time lows, hovering in the mid-5 percent range. When I started in the real estate business in 1978, interest rates were 9.75 percent and soon hit 10 percent. During the 1980s downturn they jumped as high as 21 percent. In the early 1990s they reached 12 percent.

If you're waiting just because you think prices may drop more, you may want to think twice. With the government running huge deficits, it will have to sell Treasury bills to cover the debt. Investors are feeling skittish about purchasing these securities. This means the government will have to increase the interest rate they charge in order to convince more investors to purchase. When the government increases these rates, the cost of home mortgages increases along with them.

2. But prices may go down!
One of the concerns almost all first-time buyers have is: "Will the price go down even further?" To put this in perspective, an interest-rate increase of 1 percent on a $200,000 loan will cost you approximately $50,000 more in interest over the life of the loan. A 2 percent interest-rate increase, which some experts believe is possible in the next 12-24 months, will cost you approximately $100,000 in additional interest over the life of a 30-year loan. That's a whopping 50 percent of the loan amount.

If you believe prices will go down, the issue is by how much. If you believe there is another 25-50 percent depreciation in your marketplace, then you can run the risk of waiting. What you need to know, however, is that virtually all real estate experts are saying that we are at or near the bottom. ...CONTINUED

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