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Posted On: September 9th 2024, 08:59 pm
Hey everyone!
So we’ve been talking for several months about how mortgage rates have been falling to their lowest level in more than a year while home prices have been rising 5% nationwide year over year. That has a lot of borrowers asking me, “Anthony, should I wait to buy a home until rates come down?“
The logic is essentially this: By waiting to buy a home… mortgage rates can continue to fall so that when I purchase, I will have a lower mortgage payment. Let’s see how that math pencils out.
Person A buys a $400,000 home today. Average interest rate on a 30 year fixed is 6.5%. That equals a monthly payment of $2528.
Person B waits one year to buy. Since home values are rising, they will have to pay 5% more for that same $400,000 home next year. At a $420,000 purchase price, they might get a lower interest rate. Some forecasts are around 5.5%. That would equal a monthly payment of $2384.
We can see clearly that Person A will indeed need to pay $144 more per month than Person B because the interest rate will make the payment higher today. However Person A also gains $20,000 in value because they bought the home today instead of waiting 12 months.
So if we give Person A $20,000 in additional wealth for buying now and then subtract the $1700 that they pay for buying taking the higher interest rate today… Person A still comes out over $18,000 ahead of person B.
And here’s the kicker… I will be able to refinance person A next summer when rates do come down. And even after we subtract the closing costs that will be needed for that refinance loan… Still $10,000 ahead by buying sooner rather than later.
This exercise clearly assumes that you reside in a market that is forecast to see 5% growth in home values. Some markets are forecast to have more growth and some less. Therefore, the analysis on whether it is a good idea to buy now or wait is on the growth forecast in your particular market as well as how long you would potentially wait to make the ultimate purchase.
I’d be happy to run the numbers for you. Give me a call or click the link in my bio.
So we’ve been talking for several months about how mortgage rates have been falling to their lowest level in more than a year while home prices have been rising 5% nationwide year over year. That has a lot of borrowers asking me, “Anthony, should I wait to buy a home until rates come down?“
The logic is essentially this: By waiting to buy a home… mortgage rates can continue to fall so that when I purchase, I will have a lower mortgage payment. Let’s see how that math pencils out.
Person A buys a $400,000 home today. Average interest rate on a 30 year fixed is 6.5%. That equals a monthly payment of $2528.
Person B waits one year to buy. Since home values are rising, they will have to pay 5% more for that same $400,000 home next year. At a $420,000 purchase price, they might get a lower interest rate. Some forecasts are around 5.5%. That would equal a monthly payment of $2384.
We can see clearly that Person A will indeed need to pay $144 more per month than Person B because the interest rate will make the payment higher today. However Person A also gains $20,000 in value because they bought the home today instead of waiting 12 months.
So if we give Person A $20,000 in additional wealth for buying now and then subtract the $1700 that they pay for buying taking the higher interest rate today… Person A still comes out over $18,000 ahead of person B.
And here’s the kicker… I will be able to refinance person A next summer when rates do come down. And even after we subtract the closing costs that will be needed for that refinance loan… Still $10,000 ahead by buying sooner rather than later.
This exercise clearly assumes that you reside in a market that is forecast to see 5% growth in home values. Some markets are forecast to have more growth and some less. Therefore, the analysis on whether it is a good idea to buy now or wait is on the growth forecast in your particular market as well as how long you would potentially wait to make the ultimate purchase.
I’d be happy to run the numbers for you. Give me a call or click the link in my bio.
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