Frank (ljtourist) wrote,
Frank
ljtourist

  • Mood:

Behold the power of math

It's that time of year again where I get to decide how much longer I'm going to rent versus buying a condo or something. Rather than just guess what's better, I decided to use math, so I can at least have a solid concrete answer despite the solid handwaving behind it. :)

There's a blog called Seattle Bubble that has made a very convincing case that Seattle's housing market is just running some number of months behind the rest of the country's. At first their estimate was 6 to 12 months behind, but more recently it's been 15-18 months behind. So, the question I have to ask myself is: "If this trend continues, is it worth waiting for prices to come down while interest rates might go up?". In other words, assuming that I could get a 6% 30-yr fixed mortgage today, what would the interest rate have to be to get the same monthly payment if the price goes down X% in (say) 18 months, counting in the extra rent I'd be paying and the extra down payment I'd have? With the help of Gnumeric, I made a nice little table:

Cost decrease Equivalent interest rate
0.0% 6.42%
2.5% 6.68%
5.0% 6.96%
7.5% 7.24%
10.0% 7.55%
12.5% 7.87%
15.0% 8.20%
17.5% 8.55%
20.0% 8.93%


Now, this analysis ignores things like the future value of money (but considering it's only a 1.5yr difference, I feel safe ignoring that) and different tax deductions due to different interest rates, but I think that the odds of prices falling 10% or more in the next 18 months are significantly higher than the odds that interest rates will rise more than 1.5% in the same period. So, I guess I'm renting for that much longer. Yay math!

If I've missed something, or some financial whiz wants to critique this, I'd love to hear about it.
Subscribe

  • Score!

    For some time, I've been researching different ways to improve my living space. One specific aspect was the high level of dust that my apartment…

  • State of my world

    I'm doing OK. My extended vacation is generally agreeing with me as much as I hoped, although it has only been this month that I've really had some…

  • The perspective that time naturally brings...

    For any number of years at my job I had one technical wish: to never, ever again have to find a bug and then say "wait, how did this ever work?"…

  • Post a new comment

    Error

    default userpic

    Your reply will be screened

    When you submit the form an invisible reCAPTCHA check will be performed.
    You must follow the Privacy Policy and Google Terms of use.
  • 0 comments