Waiting for just the right time to buy a home can be tricky. Should you save more money? Should you wait for house prices to fall? Should you wait for interest rates to go even lower?
There are two questions you can ask to help determine if there are financial benefits to buying now:
- Will home values will be higher a year from now?
- Will mortgage rates will be higher a year from now?
Let’s see if we can answer those questions!
Will home prices be higher a year from now?
Demand for housing in 2021 was strong and that is only expected to continue in 2022. Major industry forecasters (including the Mortgage Banker’s Association, Fannie Mae, Freddie Mac and the National Association of Realtors) have agreed that home prices are expected to rise between 6.6-10.3% in the next year.
Let’s take a house that’s valued today at $350,000 as an example.
If the buyer makes a 10% down payment ($35,000), they’ll end up borrowing $315,000 for their mortgage. Applying a projected rate of home price appreciation of 8%, that same house will cost $378,000 next year. With a 10% down payment ($37,800), they’d then have to borrow $340,200
Therefore, as a result of rising home prices alone, a prospective buyer will have to put down an additional $2,800 and borrow an additional $25,200 just for waiting a year to make their move.
Will interest rates be higher a year from now?
Today, mortgage rates are hovering around 3%. Most experts agree that those rates will rise in the coming year. Any increase in the mortgage rate will also increase a purchaser’s cost. Those same industry forecasters who are expecting home prices to rise, also expect the interest rate for the first quarter of 2022 to be between 3.5-3.9%
What if both home prices and interest rates are higher?
A buyer will pay a lot more in mortgage payments each month if both home prices and interest rates increase. Assuming a buyer purchases a $350,000 home this year with a 30-year fixed-rate loan at 3% after making a 10% down payment, their monthly principal and interest payment would be $1,328.
That same home one year from now could be $378,000, and the mortgage rate could be 3.75% (based on the industry forecasts mentioned above). That monthly principal and interest payment, after putting down 10%, totals $1,576.
The difference in the monthly mortgage payment would be $248. That’s $2,976 more per year and $89,280 over the life of the loan.
Want to crunch some numbers on your own? Check out our new calculator that helps you determine your potential cost of waiting!
The financial benefits show that buying now, rather than waiting, is a more financially beneficial choice. Of course, there are other options to consider, too. If you’re weighing your options, we’d love to help! Let’s talk about your financial goals and determine what’s right for you.