Many people are sitting on the fence trying to decide what they do if now is the time to buy a home. Some are renters who have a strong desire to become landowners but are unsure buying instantly is sensible. Others may be homeowners who are realizing that their current home does not fit their changing needs.
To determine if they should buy a house now or wait for another year, they both need to ask two simple questions:
- Do I think home values are going to be higher next year?
- Do I think mortgage rates are going to be higher next year?
Let’s shed some light on the answers to those questions.
WHERE WILL HOUSE PRICES BE A YEAR FROM NOW?
If you average the most recent projections from the main industry forecasters, the expectancy home prices will increase by 7.7%. Let’s take a home that’s valued today at $325,000 as an example.
If the customer makes a 10% deposit ($32,500), they’ll find themselves borrowing $292,500 for their mortgage. Applying the projected rate of home price appreciation, that same home will cost $350,025 next year. With a 10% deposit ($35,003), they’d then have to borrow $315,022.
Therefore, as a result of increasing home prices alone, a potential buyer will have to put down a further $2,503 and borrow a further $22,523 only for waiting a year to make their move.
WHERE WILL MORTGAGE RATES IN THE NEXT YEAR FROM NOW?
Today, mortgage rates are hovering around 3%. However, most experts believe they’ll rise because the economy continues to recover. Any increase in the mortgage rate also will increase a purchaser’s cost. Here are the forecasts for the primary 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 bent 3.6% among these four forecasts, a jump up from where they’re today.
WHAT DOES IT MEAN TO YOU IF MORTGAGE RATES AND HOME VALUE INCREASE?
A buyer can pay a lot more in mortgage payments monthly if both of these variables increase. Assuming a buyer purchases a $325,000 home this year with a 30-year fixed-rate loan at 3% after making a 10% deposit, their monthly principal and interest payment would be $1,233.
That same home one year from now might be $350,025, and therefore the mortgage rate might be 3.6% (based on the industry forecasts mentioned above). That monthly principal and interest payment, after putting down 10%, totals $1,432.
The difference in the scheduled mortgage payment would be $199. That’s $2,388 more annually and $71,640 over the lifetime of the loan.
Add to the approximately $25,000 a house with the same value would integrate home equity this year as a result of home price appreciation, and therefore the total net worth increases a buyer could gain by buying this year is almost $100,000. That’s a little fortune.
BOTTOM LINE
When asking if they should buy a house, many potential buyers consider the nonfinancial profits/benefits of owning a home. When asking when to buy for, the financial profits/benefits make it clear that doing so is advantageous than waiting until next year.
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