More than one way to lose money

Here before, we have addressed the "fence sitter" and have described the folly of waiting for the bottom of the market. As we have reported, in many parts of North Idaho, the bottom has passed and we are on our way up. Still there are bargains to be had, but our recent improvements in activity have led to a dearth of opportunities in some price ranges.

Still, we find the cautious - some might say over cautious - buyers who are so painfully aware of recent losses in a variety of markets that fear prevents them from moving forward with a real estate purchase. We all know someone who had to sell short or who was foreclosed upon. Others may have taken an equity haircut when they found that to sell a home they had to accept far less than they had hoped.

Probably these people, afraid of losing money, waited until the peak had passed before putting their property up for sale. Then, in hopes there were still some who, like them, felt values remained high, listed as the market started to fall. Many of these folks no doubt refused reasonable offers below their asking price and ultimately settled for even less as they watched the market erode from beneath them.

Now, having already had their dreams shattered by the harsh reality of the economy, they are reluctant to make another purchase, choosing instead to rent or lease while they wait on the sidelines for the market to settle, hoping for another bottom in fear of missing another opportunity to pay the least.

One event that is often overlooked is the cost of financing. In light of the fourth consecutive week of mortgage rate increases it is time to reiterate an old example of the true costs of waiting. In Coeur d'Alene for example, our average home price last month was 9 percent higher than last year or $15,465 more for the same average house. One could argue that that equals then, a loss of $15,000 as a result of waiting.

Interest rates today are 0.16 percent above a month ago. While this is no huge increase, especially when we consider the rates a year ago, it is still a part of the cost of waiting. Even at the miniscule 0.16 percent, you are increasing the interest portion of your loan by $2,425.86 for every $100,000 you borrow. So, by waiting for another dip in prices, you are increasing your risk of paying more than you need to to get into your home.

We have heard some buyers say that they want to ensure they can recover their investment should they decide to sell within the next several years. This brings up another cost of waiting; rent. If you are a family in a three-bedroom home you are renting, we will assume, for the sake of keeping the math simple, that you are paying $1,000 a month for the home. Every year then, costs you $12,000 out of pocket with no return except the roof over your head.

If you buy a home today for $100,000, then you can lose $12,000 for every year you own the home and still break even if you paid cash. In five years then, you would need to lose $60,000 to even begin to accumulate the loss created by renting. Even with the after boom decline in prices we have not seen a 60 percent drop in prices anywhere in our area. If your fear is losing money on a home then you probably don't want to rent since that appears to be the fastest way to lose money.

If, on the other hand, you just like renting because you need to stay mobile and you don't want the responsibility of taking care of a home, then by all means, renting is your best option. After all, that is why we need landlords.

Trust an expert...call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.

Kim Cooper is a real estate broker and the spokesman for the Coeur d'Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d'Alene Association of Realtors, 409 W. Neider, Coeur d'Alene, ID 83815 or by calling (208) 667-0664.