Maui Real Estate: The Cost of NOT Buying Now
Take advantage of low interest rates
Many potential buyers are uncertain as to whether to buy now or wait for real estate prices to decline further (assuming that prices will decrease). For those financing, I would suggest focusing on total cost of purchase rather than fixating on sales price. Today’s historically low interest rates play a critical part in the overall purchase and cannot be overemphasized.
Rather than discussing abstract economic principles, it would be more productive to illustrate this point by actual examples. Let’s say that Bob is interested in a condo currently priced for $200K but he believes prices might dip a bit more.
Scenario A: Bob buys today at $200K with 10% down, securing financing of the remaining $180K at 4.5% interest rate for a 30 year mortgage. His mortgage payment (interest/principal) is $912 per month. But Bob wonders if he should have waited for prices to decrease even more.
Scenario B: Bob waits a year, during which time prices have gone down 5% (which is not out of the realm of possibility) but interest rates have gone up by 1%, which many analysts/economists are predicting. So Bob is very happy that he is able to save $10K from his purchase by buying it at $190K. So with a 10% down payment and financing at 5.5% interest rate on a 30 year mortgage, he assumes that he is in a much better position than he would have been a year ago. But now his mortgage payments are $971 per month.
Scenario C: Bob waits a year, during which time prices have remained flat and interest rates have gone up by 1%. So Bob considers buying it at $210K, with 10% down but interest rates at 5.5% for a 30 year mortgage. So now facing a mortgage payment of $1,068 per month, Bob realizes that he can’t afford it.
Sure, from $971 to $912 is a difference of ‘only’ $59. But in a year that amounts to $708, which over the life of a 30 year mortgage totals $21,240. With the median sales price of a Maui home at $500K and a Maui condo at $390K, there is certainly plenty of incentive to take advantage of today’s low interest rates.
Tags: Affordable Kihei Condos, affordable Maui condos, low hawaii tax
Nice post. Isn’t it funny (not really) that nobody in the mainstream is worrying about the ravages of inflation and rising interest rates. I like how you tied the price difference to the cost difference as they are two entirely separate items.
I agree, David. People should put more emphasis on what it’s going to cost them bottom line, instead of worrying exclusively on the price.
[...] So what’s been going on in real estate news? Well mortgage applications rose last week with record low interest rates some buyers figuring this is the time to buy. Whether to rent or buy is a tough decision for some with the unknown status of the economy. With the low home prices in Brandon and record low interest rates it is more affordable to purchase a home than to rent in many cases here in Brandon. Here is a great example from Alex Cortez a Maui Real Estate Realtor on the cost of not buying now. [...]
I love Maui, and could only dream of having a place there. We come every spring for 10 days and stay at the Westin right next to Whaler’s Village. It is my most favorite place of all (so far).
That’s a great area with some of the best beaches in the world. Have you thought of doing a timeshare?
I agree with your thoughts!
In general (as I’m speaking in very broad terms since each deal is unique), if the numbers work, I’m more inclined to take a chance on buying a bit early (even if the market hasn’t quite yet bottomed) in lieu of not purchasing what I want and paying a higher interest rate down the road.
If you’re buying a rental property (looking at a longer hold) the cost of carrying the property will help the bottom line / affordability. If you’re a first time home buyer, the monthly mortgage amount (carrying costs) is often the main concern. Etc., etc., etc.
Even though price is always important, today’s values are looking increasingly more attractive since prices are now dating back to pre-boom levels in many markets and interest rates are truly at historically low / no brainer levels.
Thank you for your post!