The Cost Of Waiting

Should I buy now or wait for prices to go lower?  Are % rates going to go up or down in 2022?

If you’re a renter with a desire to become a homeowner, or a homeowner who’s decided your current house no longer fits your needs, you may be hoping that waiting a year might mean better market conditions to purchase a home. One question to ask yourself is: What do you think will happen first? Do you think prices will go down 10%, or do you think % rates will go up 1%?  With the current inventory shortage we have been experiencing, it's highly unlikely prices will decrease.  However it is very likely % rates will go up next year.  With growing concerns over rising inflation, the Fed will be under pressure to raise rates in 2022.   A 1% increase in interest rates will increase your monthly mortgage by 10%, and you'll pay tens of thousands more in interest/fees during the life of the loan.

Here is data from KCM: 3 major housing industry entities project continued home price appreciation for 2022. Here are their forecasts:

• Freddie Mac: 5.3%
• Fannie Mae: 5.1%
• Mortgage Bankers Association: 8.4%

Using the average of the three projections (6.27%), a home that sells for $700,000 today would be valued at $743,890 by the end of next year. That means, if you delay, it could cost you more. As a prospective buyer, you could pay an additional $43,890 if you wait.

Where will mortgage rates be by the end of 2022?

Today, the 30-year fixed mortgage rate is hovering near historic lows. However, most experts believe rates will rise as the economy continues to recover. Here are the forecasts for the fourth quarter of 2022 by the three major entities mentioned above:

• Freddie Mac: 3.8%
• Fannie Mae: 3.2%
• Mortgage Bankers Association: 4.2%

That averages out to 3.7% if you include all three forecasts, and it’s nearly a full percentage point higher than today’s rates. 

What does it mean for you if both home values and mortgage rates rise?

You’ll pay more in mortgage payments each month if both variables increase. Let’s assume you purchase a $700,000 home this year with a 30-year fixed-rate loan at 2.86% after making a 10% down payment. Your monthly mortgage payment (including principal and interest payments, and estimated home insurance, taxes in your area, and other fees) would be approximately $3,800.

That same home could cost $743,890 by the end of 2022, and the mortgage rate could be 3.7% (based on the industry forecasts mentioned above). Your monthly mortgage payment, after putting down 10%, would increase to $4,332.

The difference in your monthly mortgage payment would be $532. That’s $6,384 more per year and $192,240 over the life of the loan. (WOW!)

If you consider that purchasing now will also let you take advantage of the equity you’ll build up over the next calendar year, which is approximately $44,000 for a house with a similar value.

Bottom Line

It's clear that buying NOW will save you money and heartache by waiting. The market will go up and down, so the longer you hold/own the property, the greater the chance it will be worth more.  I remember when my wife Melissa & I bought our 1st home in Magnolia in 2011 for $385K. (I thought I overpaid by $10K.)  Fast forward to 2021 and it is worth over $1.1M now.  So don't worry too much about the purchase price.  It really only matters when you go to sell it.  

Don't let the sun set on your dreams to buy your 1st home, upsize, or invest in more properties. We can help you navigate this challenging time with our buy-sell strategies, and winning-strategies for bidding wars.  Connect with us for a Zoom or in-person consultation.