Don’t Delay. Buy Today! Waiting To Buy A Home Will Cost You
Millions of Americans bought a new home over the past year. Some of these homebuyers were existing homeowners who decided that the time was right to get a larger home. Whereas, many others were first time homebuyers who decided to take the leap and start building wealth for themselves instead of paying rent. As many as there were that purchased a place of their own, there were many more who sat on the sidelines and dreamed about closing on a house. If you are one of those people who have been thinking about buying a home, but haven’t acted on it, it is time to stop delaying. Waiting any longer to buy a new home can cost you significant money in the short term and long term.
Why are Potential Homebuyers Waiting to Buy a House?
The main reason why potential homebuyers are waiting to purchase a home is sticker shock. At the beginning of 2020, many experts thought that the home prices would remain relatively flat throughout the year. Then, the coronavirus pandemic hit. Many forecasters predicted that the pandemic would cause the housing market to crash like it did in 2008. However, that did not happen. Instead, home prices skyrocketed in 2020. As of October, the average home price had increased by nearly 9%. Since then, prices have increased even more. In January of 2021, average prices for houses on the market had increased over 15% from January of 2020. There are many people who are kicking themselves right now for not buying their dream house sooner. Anyone hoping to have lucked into a pandemic bargain is now feeling left out. Even though prices have increased, not buying now can cost you even more.
Home Prices Will Increase
Waiting for the price of a home to decrease before you try to buy one probably will not work out for you. The cost of houses are expected to increase over the next year. So, if you have sticker shock now, you’ll have sticker electrocution by the time we reach 2022. How much prices will rise is anyone’s guess, but experts believe that house prices will increase anywhere from 3% - 7% over the next year. Waiting to buy a home will not save you money. You will only end up having to take out a larger mortgage.
A big reason why home prices will increase is because of the limited supply of homes. There are a lot of new home projects that are either in permitting or just beginning. However, all of these projects will go toward meeting last year’s demand and will not drop prices. Furthermore, the cost of lumber is skyrocketing, which is making it more expensive to build houses. So, even if there are enough houses built to meet the demand, prices will still increase because it will cost a lot more to build them. This cost will always be passed onto homebuyers, so that it does not cut into home builders' profits.
Mortgage Rates Will Increase
The large demand by homebuyers is due to historically low mortgage rates. Today’s low mortgage rates will not last forever. Mortgage rates are so low because the Federal Reserve slashed interest rates in an effort to boost the economy, which was hit hard by the pandemic. As the pandemic recedes, so too will the need for economic stimulus. This means that interest rates will continue to ascend as the number of coronavirus cases decrease and the number of industries reopening increase. Like home prices, how much mortgage rates increase is anyone’s guess. Estimates range from mortgage prices increasing to anywhere between 3% and 3.6%. Applying for a mortgage now will save you thousands upon thousands of dollars over the life of a home loan. Even if you currently cannot qualify for a mortgage, taking the steps you can to apply in a few months will still save you money.
How Much Will Delaying a Decision to Buy a Home Cost You?
Choosing to wait is most likely going to cost you a lot of money. How much money is completely dependent upon how much mortgage rates and home prices increase and how quickly. However, you can get an idea of the financial impact of deciding to wait to buy a home if you take some of the current forecasts and plug them into a hypothetical. According to Realtor.com, mortgage rates will be 3.4% and home prices will increase by 5.7% by the end of the year. Assume you are looking to buy a house today where you will need a mortgage of $300,000. Today’s mortgage rates are as low as 2.7%. In today’s ideal situation, your monthly mortgage payment would be about $1,216.79 for principal and interest on your home loan. But, what happens if you wait and the price of the home, as well as the mortgage rates increase?
If you use the estimates above and house prices increase by 5.7%, then the house you pay $300,000 today becomes $317,100 by the end of the year. Spending an extra $17,000 is no small chunk of change. When you factor in increased mortgage rates, the numbers become even more eye-popping. If you assume that today’s mortgage rate of 2.7% makes its way up to 3.4%, then you will cost yourselves tens of thousands of dollars over the life of your home loan. The larger mortgage due to higher home prices and the higher interest rate will cost you over $68,115.60 over the life of your mortgage.
Not only does it make a big difference in how much you pay over the full length of your mortgage, it also impacts your monthly mortgage payment. Your monthly principal and interest payments given the increased price of the home and mortgage rates will be $1,406 instead of $1,216.79. That’s an increase in monthly payments of over $189. If you had any trouble following the numbers in the hypothetical we just presented, it is all laid out in the chart next to this section.
Final Thoughts
In some instances it is financially prudent to wait on making a large purchase. Waiting to buy a house in today’s real estate market is not one of those instances. Today’s home prices are only going to increase and so are today’s mortgage rates. Waiting to buy the home of your dreams can actually cause you financial nightmares.
If you want a new home, but do not want to potentially cost yourselves thousands down the road, contact us! The independent mortgage professionals at Peoples Choices Mortgage will do everything in our power to help you. We offer a complimentary mortgage qualification assessment that will let you know where you stand right now. However, if you cannot qualify for a home loan right now, we will work with you to get you in a position to qualify sooner than you would believe. The sooner you can get yourself in a position to buy a home, the larger the potential savings would be given increases in home prices and mortgage rates.
