CLIMBING THROUGH WINDOWS

Hollywood couldn’t have cast a more traditional looking American family to replace the six very real members of the Heinz family—whose youthful fresh-scrubbed faces graced the cover of the July 13th issue of Parade Magazine. The Heinzes, profiled for the feature “The Secrets of Thrifty Families,” were no doubt chosen because they are emblematic of millions of American families who have been forced to make major lifestyle adjustments in order to rid themselves of cumbersome debt. Having successfully restructured their debt at a lower interest rate, they will spend only two years diligently paying it off. Along the way, one of their most effective cost-cutting mechanisms turned out to be looking beyond their former home in New Jersey to find a more affordable place to live. They chose (you guessed it) Sarasota.

When was the last time you heard the words “Sarasota” and “more affordable place” used interchangeably? The answer would be sometime before the boom crept in and prices soared from relatively affordable to totally unbelievable and—as it turned out—completely unsustainable. In the wake of a thousand stampeding speculators, the idea of Sarasota being reasonably priced for the average American family turned into so much dust. Until now.

Because the earliest tremors of the nationwide real estate correction were first felt in hyper-inflated markets like Sarasota-Manatee, the first stirrings of an end to the correction are also being noticed here first. Today’s prices have finally fallen to roughly where they would have been on this date had normal appreciation—rather than ramped-up speculation—governed prices over the past four years. Now families like the Heinzes can move here as much for affordability as for a 1,001 other good reasons.

Even if turmoil in the housing and mortgage industries has yet to come knocking at your front door, it may be pulling in the driveway if you are a creditworthy home buyer waiting for prices to drop further before you strike your best deal and take out a mortgage to cover it.

Experts now believe the era of historically low interest rates—which made waiting to buy a sensible strategy if you had the luxury of time—is fast coming to a close. Rising interest rates, it is widely felt, will create more plusses than minuses for the markets in general. Among other things, they could strengthen the dollar, stabilize oil prices and help rescue from insolvency the financially strapped mortgage giants Fannie Mae and Freddie Mac. Needless-to-say, there’s a down side too. Advancing interest rates may shrink the amount of home you can afford even as it pushes a whole new batch of homeowners with adjustable rate loans toward the prospect of foreclosure. It could even handicap your ability to secure a mortgage.

A new round of foreclosures could easily prompt beleaguered lenders into requiring larger down payments and stronger credit histories on what will surely be a diminished pool of available loans. An institution that loses millions on bad mortgages has that much less to lend for new mortgages and other lines of credit.

Recently, the Sarasota Herald-Tribune pointed out—in a not atypical example—what happens when home prices go down as interest rates go up:

If you buy a home today for $300,000 and put 20% down, you’ll need to borrow $240,000 at closing. At 6 percent interest, your monthly payment will end up being about $1,438 per month.

If you gamble that the house won’t sell and bide your time until the price drops to say $280,000—then put the requisite 20% down—you’d obviously need to borrow proportionately less, or $224,000. But if the interest rate rises to 7 percent in the meantime, your financial obligation on the lesser loan ends up resulting in a larger monthly payment—$1,490 per month. So even though the price and amount borrowed have both gone down, the amount owed over the life of the loan actually goes up by $19,000—which means you’ve saved practically nothing by waiting and stood to possibly lose the home to another buyer who wasn’t willing take such a risk.

Today’s market offers several windows of opportunity—price being one, selection another and low interest rates a third. Weigh your reasons for buying against the prospect of waiting. The price window may or may not open a few more inches; but the latter two are beginning to close. If you truly have your eye on that very special home, don’t let the possibility of additional savings blindside you to the very real possibility that the property could sell before your gamble pays off; that loans will be that much less forthcoming and that any savings realized by waiting might actually be offset when higher interest rates add up to higher monthly payments.