Hint: Buying Now Will Probably Be Cheaper!
We know… This housing market is insane! Unlike anything we’ve recently seen.
So, should you buy now with rapidly rising housing prices? Or would it be more prudent to wait and see if prices come back down? That’s the million dollar question, right?
Believe it or not, the bigger question is actually what’s going to happen with rates, though. Because it’s actually rates that affect affordability more than home price!
Interest Rates Affect Affordability More Than Price
While we can’t see the future, we can tell you rates are moving up and Fannie Mae has projected a gradual increase through 2022 that will put rates close to 1% higher. We can also tell you there’s no indication home prices regionally will u-turn anytime soon; we’d have to have another financial crisis like 2008 on our hands to see any significant negative impact…
But let’s just say prices do actually come down next year and you do wait to buy until they come down. Will your home actually be more affordable than now? Check out this math:
- Buy Now – Let’s say you’re looking at a home right now listed for $450k. With rates around 3% currently, your monthly payment would be $1,158 on a 30-yr mortgage with 20% down.
- Buy Later – If we have a catastrophic collapse within the next year (not going to happen…) and prices come down 8% like they did in 2008, that same home may be listed for $414k next year. But your rate will likely be closer to 4.125% on a 30-yr mortgage with 20%, putting your monthly payment at $1,605.
- The Difference – That’s a $87 increase in your payments even with a 8% decrease in sales price! And if prices continue to appreciate as projected, even at a slower pace than now, that delta in affordability is only going to get larger the longer you wait.
If You Can Buy Now, You Should Buy Now
While we’re not advocating you try and buy now if you’re not financially and emotionally ready, we are saying the numbers speak pretty clearly for themselves. And we’re not even diving into the amortization, total interest, and equity differences between buying now or waiting!
It may seem ironic, but a $450k house right now would actually be cheaper than a hypothetical $414k home a year from now. But the reality is these are two separate homes… While we may see the rate of home appreciation slow as more homes come on the market this summer, we are on the far opposite side of the pendulum from home values decreasing and are no where close to seeing prices dip.
If you have any questions, don’t hesitate to reach out! We’re always here for you.
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*Rates presented for this scenario are based on: 30-yr conventional mortgage. $450k purchase price. $360k loan amount. $1,518 monthly payment (excluding taxes, insurance, and HOA). 3.158% annual percentage rate (APR) based on 720 FICO on 5/5/21. Rate may change or not be available at the time of lock. Network Funding reserves the right to change or cancel this offer without notice. Subject to applicable laws and regulations. This is not a promise to make a loan. All borrowers must qualify. Future rates and home values are purely conjecture for a “what if” scenario for the purposes of explaining the cost of rate increases and should not be expected to determine actual future costs. Hypothetical rate scenario based on: 30-yr conventional mortgage. $414k purchase price. $331,200 loan amount. $1,605 monthly payment (excluding taxes, insurance, and HOA). 4.125% annual percentage rate (APR) based on a 720 FICO.