Housing Bubble?
Today's WSJ story "Why Your Home Might Sell for Less" (subscription required) gives a pretty grim outlook of home prices in major metropolitan areas if mortgage rates go up. The quoted forecast done by Fidelity National Financial concludes that the house price for Seattle area, which for 2003 has a median price of $255,000, will see a 25% drop if rates move up to 8% next year and keep there until 2006.
This is very alarming news to me. Having bought my first home this year, the last thing I want to see is my home equity turns south. On the other hand, I'm assured because:
1. I did my homework before the home purchase. My house, at $315,000, is still way below the median price in the City of Sammamish. Starter houses are less sensitive to affordability change caused by the rate.
2. My calculation shows I'll be better off buying a house if it can appreciate 2% year-over-year. This goal should be easily attainable if inflation goes up with the rate increase.
3. Also, 8% rate next year is highly unlikely for a reelection year.
4. Finally, I do get much larger space and am much happier now compared to my apartment days. Why bother to sell in the next three to five years?
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