When you look at the current changes in the real estate market, it may seem like waiting to buy a home after things settle down is the smart choice. But, In reality, waiting to buy a home could cost you more than you think - Let me explain why. Some of you may be renters who have a strong desire to become homeowners but are unsure if buying now makes sense - Others of you may be homeowners who are realizing your current home no longer fits your changing needs.
Regardless of which you are, to determine if you should buy now or wait another year, you need to ask two simple questions:
1. Where will home prices be a year from now?
2. Where will mortgage rates be a year from now?
So how much will waiting to buy a home actually cost you? Let’s shed some light (and answers) to these questions.
Where will home prices be a year from now?
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While home prices are currently high, a decrease doesn't seem to be in the future. Nor, does an increase in home inventory available for purchase. If you average the most recent projections from the major industry forecasters, the expectation is home prices will increase by 7.7%. So, let's take a house that’s valued today at $325,000 as an example. If the buyer makes a 10% down payment ($32,500), they’ll end up borrowing $292,500 for their mortgage. Applying the projected rate of home price appreciation, that same house will cost $350,025 next year. With a 10% down payment ($35,003), they’d then have to borrow $315,022. As a result of rising home prices alone, a prospective buyer will have to put down an additional $2,503 and borrow an additional $22,523 just for waiting a year to make their move. The additional expense incurred from waiting a single year could have been used for upgrades to your home, a boost to your savings, or a nice vacation!
Where will mortgage rates be a year from now?
Today, mortgage interest rates are hovering around 3%. However, most experts believe they’ll rise as the economy continues to recover. Any increase in the mortgage rate will also increase a purchaser’s cost. Here are the forecasts for the first quarter of 2022 from four major entities:
Freddie Mac – 3.5%
Fannie Mae – 3.5%
National Association of Realtors – 3.5%
Mortgage Bankers Association – 3.9%
The projections average out to 3.6% among these four forecasts, a considerable jump up from where they are today.
What does it mean for you if home values and mortgage rates increase?
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A buyer will pay a lot more in mortgage payments each month if both of these variables increase. Assuming a buyer purchases a $325,000 home this year with a 30-year fixed mortgage at 3% after making a 10% down payment, their monthly principal and interest payment would be $1,233.
That same home one year from now could be $350,025, and the mortgage rate could be 3.6% (based on the industry forecasts mentioned above). The monthly payment after putting down 10%, totals $1,432. The difference in the monthly mortgage payment would be $199. That’s $2,388 more per year and $71,640 over the life of the loan. Add to that the approximately $25,000 a house with a similar value would build in home equity this year as a result of home price appreciation, and the total net worth increase a purchaser could gain by buying this year is nearly $100,000. That’s a small fortune!
>RELATED: Free Mortgage Calculator
So, is there a perfect time to buy a home?
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The idea of a "perfect time" for you to buy a home is a myth in some ways. The perfect time is really what seems to make the most sense for you. If you have a stable income, a low debt-to-income ratio, good credit scores and enough savings for emergencies - you have the luxury of making that choice at any time. However, taking into consideration current home prices and mortgage rates and where they'll be headed in the future will help you keep things in perspective.
When thinking about buying your new home, many potential buyers think of the non-financial benefits of owning a home; however, when asking when to buy, the financial benefits make it clear that doing so now is much more advantageous than waiting until next year.
If you've decided now is the right time to purchase a home, take a look at our article, "Where to Start When You Want to Buy a House" for great information to prepare you for the next step. And of course, if you have any questions at all GET IN TOUCH. We're always happy to help you.