Question

Ken and Barbie are renting an apartment for $1,500 a month and could rent a house similar to the one they want to buy for $2,000 a month. They know the rule of thumb that says housing prices increase, on average, over the long run at 3% a year but they also know there are peaks and valleys within the long run and they are not certain where the market stands just now. Interest rates have been very low for a few years pushing up the price of houses. They have $50,000 they can use as a down payment and the houses they are interested in currently cost about $500,000.

1.     Which of the following is not an important consideration as to whether Barbie and Ken should continue to rent or whether it is time to buy.
   1.      If they buy now, they will have a high ratio mortgage that greatly increases their borrowing costs.
   2.     If they wait, prices could continue to increase.
   3.      If they wait, interest rates could go up causing housing prices to fall.
   4.     All of the above are important considerations.

Answer 1

The correct answer is the last option i.e. option d. All of the above are important considerations.

All the considerations above are correct and genuine. A buyer of house need to worry about his ability to make the downpayment, quantum of mortgage, proportion of mortgage, interest burden, potential appreciation / depreciation of property prices, potential rise / fall in interest rate.