Should you buy now while interest rates are low or wait till house prices drop?

There is a lot of talk that having lower interest rates means that people should look to buy houses now because the payments will be lower, and while it's true the rates are the lowest they've ever been the lower interest rates do not mean that you will be able to get a bigger mortgage. The banks have a servicing rate that is somewhere in the high 7%'s depending on the bank which means that they calculate your ability to buy a house as if you had a rate of around 7.7 to 7.8 percent. While this has come down a tiny bit for some banks with the OCR reduction the overall change to your ability to get a mortgage will not change much.

Also basing a major decision on a drop in rates that could turn around at any time without looking at the future is not a good idea. What's more important is to have a plan for what you can afford and the right time to buy for you, and stick to that. If you are not sure what your plan should look like the getting advice for this is the key.

Similarly, waiting for the market or house prices to drop could be equally foolish as there is no guarantee that there will be an overall drop in the housing market. When the media talks about price drops they are primarily focusing on comparing the current average house price to the same average house price a year ago and if the current house average sale price is lower this means the market has gone down. This is not an accurate way to really see how the market is going.

If we do start to see an actual drop in prices, you will see people taking their houses off the market and waiting until the market recovers unless they do not have a choice, in which case you will see advertisements talking about how house was sold 50 to $100,000 below value. We experienced this in 2008 during the GFC when everyone expected properties to have dropped by 30% and we saw sensational articles about houses being sold a hundred thousand dollars below value. I dealt with many people searching for these bargains. But what they found was now everybody knew that there were bargains to be had there were more people looking for houses which actually meant that prices went back up. So while it was possible you could get a deal if you're in the right place at the right time putting your entire plan for buying a house on the hope that someone else loses a hundred thousand dollars may not be the best plan.

We all want to make money on a houses and if you are buying a house for only 1 to 3 years you would be more concerned about price you pay now vs future growth but if you're planning on owning a house for 10 years plus, unless you are seriously overpaying the current price really is not that important because over the long term the house will simply go up in value.

So don't fall for the hype from the media about interest rates or house prices meaning suddenly it's so much easier and better for you to buy a house, focus to your plan, get good advice and buy when you have the full information in a long-term plan to pay off your loan faster.

Alan Borthwick