Should you buy now or wait until prices go down? Today, I’ll let the numbers show you the answer.
Should you wait to buy a house? Will the prices eventually go down? What is your buying power? Today, we’ll discuss the answers to these questions and more.
My initial answer is that no, you shouldn’t wait to buy a house because, even if you think you’ll save more money, the numbers won’t ultimately make sense for you. To highlight my reason for giving this answer, I’ve come up with two scenarios—one in which home prices rise over time, and the other in which prices go down. You can follow along in the video above for visual aids, beginning at about the 1:00 mark.
Scenario No. 1
In this first scenario, the rate right now is 4.01%, the home price is $750,000, and the monthly payment (including principal, interest, taxes, and insurance) is $4,525. If, in this scenario, you were to wait until next year to buy, the rate would increase to 4.8%.
In real life, the new tax reform bill has already made it clear that the government’s intention is to bring the national average to 6% or more, so you can bet that the jump in this scenario won’t be the last you’ll see. The Fed has already increased rates three times this year.
Waiting until next year in this scenario would mean that the prices by the time you’re ready to buy will have risen to $789,750. This 5.3% increase in prices along with the spike in interest rates means that your monthly mortgage payment will also increase to $5,096.
The extra $571 you’d spend per month by waiting could be used for other things: a car, food, weekend activities, etc. On an annual basis, you’d spend $6,852, which is enough to fund a vacation or to pay off a credit card debt. Multiply that increase in expenditure over the next 20 years and you’ll see that you’re paying $205,560 more than you would by taking advantage of the situation now.
Scenario No. 2
In this second scenario, if you buy a house at the list price of $300,000 and put 20% down, you financed $240,000 at the interest rate of 3.25%. Your mortgage payment is $1,044, and if you multiply that over a 30-year spread, you will pay $375,842 in total.
If you wait a year to buy in this scenario in which the rate goes up to 5% and the list price goes down to $289,000. You pay less for your down payment at the same 20% rate, but your mortgage payment is now $1,242, and over that 30-year period, you end up paying substantially more—in total, you’ll pay $447,120.
You may think that you’ll be saving yourself money in the long-run by waiting until prices go down, but with the climbing rates, you are ultimately going to spend more. You have more buying power now than you will later down the road, so don’t wait. Schedule a consultation with us so we can see how much you qualify for. We can show you this scenario with your information plugged in so you can see for yourself.
If you have any questions or remain unconvinced, don’t hesitate to give me a call. I’d love to have a conversation with you.