The Cost-Benefit of Waiting for the Bottom.

February 25, 2011, 4:37 PM ET.
By Matthew Strozier

With falling mortgage rates and home prices, it’s easy to see why potential buyers might want to hang on the sidelines a bit longer, fearing that jumping now could leave savings on the table. But this strategy, like any gamble, has its risks, as Emily Trinks, an economist with Zillow.com, pointed out this week.

First of all, one of those two variables, or both, could rise. As Trinks writes: “It’s important to consider what the actual stream of cash flows that you’ll be making each month will be and how the different moving parts—home price and mortgage rate—impact the actual payments made.”

Trinks runs through a hypothetical case of a buyer with good credit looking at a $200,000 property with 20% down. The scenario looks at monthly costs if the buyer waits for a 6% percent drop price but sees an uptick on the 30-year fixed mortgage rate from 4.7% to 5.7% during the same time. Trinks writes that “in the time it takes to hit bottom with another 6% drop in values, her monthly mortgage payments will be $873, $43 more each month even though she buys the house more cheaply.”

Extended out over the thirty years of the loan, this buyer would pay over $25,000 more for a smaller mortgage, Trinks adds. (There’s also a detailed chart showing how monthly costs could change depending on fluctuations in price and mortgages rates.)

Of course, not everyone is waiting. As we reported this week, data from the Mortgage Bankers Association suggest that buyers (and those looking to refinance) are in fact jumping on lower mortgage rates. So here’s the question: Does it make sense to wait for the market to “hit bottom”?