It has been said that more money has been lost due to indecisions than ever was due to making the wrong decisions. Many times, the larger the decision, the more likely procrastination comes into play and doing nothing will cost something.
Buying a home is certainly one of the biggest decisions people make. Careful consideration and planning are necessary steps leading to a prudent decision. Considering today’s market that includes a global pandemic, financial volatility, and rapidly rising home prices, it is understandable that many people thinking about a home purchase are in a wait and see posture.
However, there is a cost connected to waiting and it may be a lot more than you think. The recent Home Price Expectation Survey 2021 Quarter two estimated appreciation rates will average just under 5% annual for the next five years. It expects prices to increase by 8% in the next one year.
Being a renter or even putting off moving to a larger home, could keep you from enjoying the benefit of that appreciation. If your down payment is in the bank, your expected earning will be less than 2%. In a home, the owner has the benefit of leverage when a mortgage is used to finance the home.
Buyers are borrowing a large portion of the purchase price at around 3% interest but the entire value of the home is appreciating at a higher rate and the profit builds equity for the homeowner.
Another major component for the owner is that the amortizing mortgage is being reduced with each payment that is made. As the home goes up in value due to appreciation, the unpaid balance goes down with principal reduction creating equity from two directions.
If you waited one year to buy a $350,000 home today, the price could easily be $378,000. A 5% down payment on this home at today’s price is $17,500. If you could earn 2% on a certificate of deposit, it would be worth $17,850 in one year. If it used as a down payment on a $350,000 home that appreciates at 8%, the equity in one year would be $52,442. Use the Your Best Investment calculator to make your own projection.
Mortgage experts anticipate rates to rise by 0.75% in the next year which means that you’ll pay more interest on a larger mortgage by waiting. The monthly payment could easily be $200 more by waiting a year. Based on how long you intend to be in the home, it could make the overall housing cost much more.
To run some examples of projections based on your own expectations and at the price you are considering, go to Cost of Waiting to Buy and Rent vs. Own.
If you have some specific concerns that is keeping you from deciding today, let’s get together on the phone, an online meeting or somewhere face-to-face so that you can get the facts about what it takes to buy a home now.