By Michael Zaldivar
Let’s talk about one the most important decisions that anyone makes in their life: buying a new home. This is a topic that leaves a lot of people saddled with anxiety and stunned with indecision. Ultimately, all this uncertainty is caused by the singular question, “Is now the right time to buy?” If you ask most realtors, they will tell you that the right time to buy is always now. If we dive a little deeper into the reason for that, we find that the cost of a home, especially in our market, is constantly rising and on top of that, mortgage interest rates are constantly in flux. Therefore, by purchasing now, the cost of the same house will almost always be lower both by way of monthly payment as well as interest rate vs waiting until the “right time”. Alternatively, by deciding to wait for a lower interest rate, the appreciation on that home is likely to outpace the additional buying power that you have gained with said lower rate.
Here are some quick stats that show the cost of waiting for mortgage interest rates to fall: The local market has appreciated at an average rate of about 6.4% over the last 10 years. This rate has been rapidly rising in recent years so we will use the average rate I have calculated to stay within the average margins. Current interest rates on mortgage loans are averaging around 6.5% at the time of the writing of this blog with a projected decrease to 5.6% sometime in 2024. Using these numbers allows us to explore the cost of waiting to purchase using Google’s Mortgage Calculator.
Item 1 below features today’s rates assuming a $500,000 purchase with a 20% down payment.
Item 2 assumes the same purchase in 2024 with the lower interest rate and the adjusted cost of the same home at 6.4% appreciation.
These examples illustrate a savings of $43 a month. That doesn’t seem like much. However, after factoring in the additional $6,400 needed for the down payment plus additional closing costs the lender and tax offices would require at the next year’s higher values. The $6,400 alone will require 12.4 years to recover with a savings of just $43 a month. Not counting the year of equity lost costing another $2,750 in equity from the payments made. The of course the equity from the appreciation of the home at $32,000. This may seem like small potatoes in the grand scheme of things, but lost money is lost money if you ask me. Personally, I am not prepared to leave about $41,000 ($36,000 in appreciation + $6,000+ in down payment) on the table to save about $43 a month until such a time as I can refinance the home. Considering the total cost of waiting to purchase is $41,000 you would need to79.5 years to make that up using the $43 a dollars a month you were saving by waiting.
There is also no guarantee that rates will indeed drop at all in the short-term, leaving buyers further and further away from buying a home to best fit their needs. I will provide you with some statistics that illustrate this point in a moment. Fortunately, we have a great team that absolutely love to get our clients in the right home. Our goal is always to assist in building toward a brighter future in the home of your dreams. Sometimes a starter home is the best way to enter the market. This home will likely satisfy most “must haves” while making sure that at least the minimum needs are met. It will also serve as a great jumping off point to begin earning equity rather than burning money on rent. There are also options for buyers to purchase a home that needs some updating and additional TLC. Buying a fixer upper may not be something you’ve considered in the past, but with the right amount of time and effort, it could look amazing in the future. I have purchased one of these myself and it has served me well. This process can be a little bit trickier and requires a buyer with some patience who is not afraid to deal with renovation dust at times while parts of the home are being worked on. There is also the option of moving a bit further away from the bigger cities into a growth area where you can get a little more home for your money. There are countless other options to enter the market and refinance the home later to bring the payment down if you can make the higher payments for the home of your dreams.
All I know is that if it was me doing it all over again, I would buy and buy fast. I have already been priced out of one state in my lifetime and I do not want that for anyone!