The Cost of Waiting to Buy a Home

Waiting to Buy Can Decrease Your Purchase Power

In this uncertain real estate market, many buyers may be playing the waiting game when it comes to purchasing a home. There are advantages and disadvantages to this strategy. Waiting could mean you have more time to save for a larger down payment. Waiting could also mean you end up paying more when you decide to buy and your rent payment will not build you any equity. Let’s break down the cost of waiting to buy a home.

Interest Rates

Interest rates in the real estate market have shifted significantly over the years. Previously at historic lows, they are now at their highest since 2001. While this change may seem discouraging to some, remember the adage: “date the rate, marry the house.” Focus on finding your dream home, as rates may fluctuate, and refinancing opportunities could arise in the future. Real estate is a long-term investment, and with careful planning, you can confidently navigate today’s interest rates.

Home Prices

In the past few years, the real estate market has seen a consistent rise in home prices and a decline in inventory. Adopting a “wait and see” approach to house hunting might not be in your best interest. Even delaying your purchase by a few months could result in reduced purchasing power.

If you’re contemplating selling your current home and buying another, you might be tempted to wait and gauge how much your home appreciates. However, it’s crucial to consider that waiting could lead to a higher selling price but potentially limit the pool of buyers who can afford your house. Moreover, as your current home’s value increases, the prices of the houses you are eyeing to buy may also rise.

While this advice remains accurate, it’s important to note that experts aren’t projecting a decrease in home prices at this time. Therefore, making informed decisions based on your financial situation and housing needs is key in the current market.

“As your current home’s value increases, so does the price of the houses you’re looking to buy.”

Inventory

According to John Hunt, Principal and Chief Analyst at MarketNsight, inventory reached a significant inflection point in June 2023, signaling lower inventory levels in the future. He forecasts that inventory will tighten further in the coming quarters, and we do not have enough supply for existing demand. The new home industry is addressing some of the shortages, and as a result, new home market share is increasing dramatically. Home prices have remained amazingly stable despite historically high mortgage rates. With inventory starting to tighten again, prices will remain stable and show a slight increase this year.

What the Numbers Show

Over the past five years, a couple who purchased their first home in 2019 for $400,000 with a 5% down payment and a 4% interest rate have experienced significant growth in the value of their property. Based on projections by John Hunt, the housing market in the Metro ATL area has seen an approximate 55% increase since 2019, resulting in their current home now being valued at over $620,000. This substantial appreciation has granted them over $250,000 in equity in just half a decade.

As their family has expanded, they have found that their current home, once considered spacious, now feels cramped. In search of more suitable living arrangements, they have come across a larger home priced at $800,000. With their accumulated equity, they can now afford to put down over $200,000 toward their new home, which will better accommodate their growing family’s needs.

While their new mortgage payment will increase due to the higher loan amount and prevailing interest rates, they have a strategic plan in mind. They anticipate that interest rates will eventually drop back to around 5%, and they will consider refinancing, reducing their monthly payment significantly. They believe this is feasible within the next 12-18 months.

However, they are also aware that delaying their decision could result in higher home prices. If they wait another two years and assume a 5% annual increase in home prices, that $800,000 home they want to buy could appreciate to nearly $840,000. Such an increase would raise their mortgage amount by up to $38,000 at a 5% interest rate, leading to an additional $227 per month in mortgage payment.

Given the dynamic nature of the real estate market, it’s essential for these homeowners to weigh their options carefully. While waiting may lead to higher home prices, the potential for lower interest rates in the future could offer considerable savings through refinancing. Ultimately, their decision will be influenced by their current financial situation and long-term housing needs.

What is your cost to wait?

Interested to see what your cost of waiting to buy a home will be? Contact a local mortgage banker today to run the numbers for you. You could also use this rent vs. buy calculator.

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