Many buyers are asking us this question: “Should I buy a home now or wait to see what happens in the real estate market?”. The short answer is “BUY NOW!” But everyone has a unique situation and has unique needs and desires. There is no one correct answer, so here are some things to think about.
How important are mortgage rates?
As I write this, the average rate is now 3.13%. Last year rates were a little over 4% and in 2018 they were over 4.5% at this time of year (Freddie Mac Rates). That’s only 1 percentage point, which isn’t very much – or is it?
Let’s say you are thinking about buying a $300,000 house today with 20% down at 3.25%. What difference would a 1% higher mortgage rate make?
At 3.25% your payment (principle and interest) would be about $1,044.
At 4.25% (1 point higher) your payment would be about $1,181. That’s $136 MORE each month and almost $50,000 over the life of the loan!
Another way to look at it is this: at a payment of $1,044 you can buy a $300,000 home at 3.25%. The same payment at 4.25% only buys a $265,000 home.
Wow! The mortgage rate really does have a big impact on the payment or the price of the home I can afford. Note that the payments above do not include things like insurance and taxes.
Are home price going to fall or rise?
No one has a crystal ball. I certainly don’t, but there indicators we can watch. Prices are affected by the law of supply and demand. When demand is high and supply is low, prices rise. When the opposites are true, prices fall. At present we have a shortage of inventory and buyers are active. Will this continue through the next year? I think so and economists that I follow agree. For a good discussion of home prices and the pandemic watch this video:
The X Factor
The X Factor is YOU. Consider your needs and desires. Balance them against the market we are in right now. I wouldn’t want you to miss out on the opportunity to get a great home at a great price, but are you ready to buy? Only you know the answer tho that question. What I would advise is not to make a rash purchase but also don’t wait if you find something you like. Keep the 80/20 rule in mind. Nothing is ever perfect, but if you find a home that is really good for you buy it. If you wait for your perfect home, and interest rates and home prices go up, you might never have this change again.