There’s a good reason why buying a house now will cost you less than if you wait for later.

Some economists are calling for another 5% to 10% drop in housing prices, and this is causing many would-be buyers of homes to hold off on their purchase. They’re saying, “I don’t want to buy now only to find out I could have got the house for less money later.”

But there are several problems with that line of thinking:

1. Where is the bottom? – We won’t know when house prices have bottomed until we have the data to show that home prices have moved up for several months in a row. By that time, the bottom is already gone. We may be there already.
2. Seller motivation – When the market is distressed, you get a more motivated seller, which can result in a lower purchase price, financing incentives, both or even more. When the market is recovering and prices are moving up, sellers are less motivated and will not give as many concessions to buyers.
3. Interest rates - We’ve already discussed how the Federal Reserve is winding down its program to purchase Mortgage Backed Securities. When you remove that large purchaser of MBS, bond prices will fall and yields (interest rates) will go up. Data shows that this MBS purchase program has been keeping interest rates down below its normal market rate by about 1%.
4. The math – A buyer holding out for a 10% price drop could see those savings eaten up with just a 1% rise in interest rates.

A home buyer who buys today will find good prices, low interest rates, a potential tax credit and sellers who are motivated to negotiate.

Someone who waits for a “bottom” will actually miss it; they won’t pay any less for the house than they would today, they’ll pay more for their financing, they’ll miss out on the tax credit, and they’ll get less from the seller in their negotiations.