Does a real estate purchase pay off nowadays?
People often ask me if buying a real estate pays off these days. That’s why I decided to write a few lines to explain my point of view.
What people are most interested in is whether or not to expect falling flat prices, or interest rates on the mortgage going down, or banks easing the rules and going back to 100% financing, whether the crisis is at its worst or whether or not to expect some summer or Christmas sale, etc.
That’s how I see it...
I think the mortgage interest rates will continue to go down and will stay at their lowest for a year and then fall by a maximum of 1%, so the cheapest mortgage will be around 4%, but the common rates will be around 5 to 5.5%. I think that the flat prices will go down and they will be at their lowest at the end of this year and the beginning of next year, and will fall by about 10-15% depending on the type of real estate. I think the crisis is not yet at its worst and there will be a Christmas sale... I think so, but I’m not an analyst, nor is it supported by any larger analysis, so I may be wrong.
Whether buying a flat, house or land pays off these days, regardless of the way of financing, or whether it comes from your own resources, a mortgage loan, or their combination, depends on your current situation and the right selection of property.
If you need your own living for the feel of it, then buy it despite the possibility that it may fall in price. When it falls, for example, by 15%, after you calculate the difference in monthly payments, it is not such a dreadful sum. Moreover, estimating the bottom is not as easy as it may seem. If the real estate prices are lower a year from now, who knows, maybe you will be waiting for a further decrease until you miss your chance and end up with a higher purchase price than today. Mass hysteria works in the real estate business, and even if you resist, the crowd can go against you.
If you want a real estate for your business, I think that even today you can buy well if you have the time and nerves. There are many sellers who are already losing their nerve. There are also many sellers who have to sell for a variety of reasons. This is your opportunity.
There is still the issue of further real estate price development – if they go down, when will they go up and how fast. To a large extent, it often depends not on logic but on psychology. We are influenced by articles of a similar character to this one, and when they are written by someone “who must be right,” many people stick to it, and they could either misunderstand it or someone thinks more in terms of their own benefit – that is why it can be quite difficult to estimate the further development of real estate prices.
I will go back to what I said earlier. If you also expect a decline in interest rates, you can adjust the strategy when choosing a suitable fixation period. Some banks allow you to change the fixation period during your mortgage repayment, so today you can choose an annual fixation period and then a five or ten-year fixation period. If the bank does not lower the rate after a year, you can go to another bank, usually with minimal costs and paperwork. If you buy today and the price of your property is lower after a year, the situation might change considerably after another year and you will be glad to have got a great deal.
It is certainly worth considering and gathering the right materials for your decision. I am keeping my fingers crossed for you, and if you decide for a mortgage loan, I will gladly help you with choosing the best one.
Kamil Bučo, 06.07.2009
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