Why it pays to purchase a home promptly Delaying could cost you a lot more in the long run
Buy a home now or wait things out a while? It’s a question on many prospective purchasers’ minds, and a valid one, considering how pricey many homes are nowadays.
A recent analysis from Zillow, however, suggests that financial pain accompanies postponing this transaction.
First, consider that Zillow pros projected at least a 10.5% increase in 2021, this is nearly 22% increase in home sales over 2020. When Zillow published its analysis, mortgage interest rates averaged 2.68% for a benchmark 30-year fixed loan. That rate, coupled with a 20% down payment, would set a buyer back approximately $861 a month, not including insurance and taxes.
Now imagine that home values were actually a little less than the 10.5% increase Zillow projected – say 8% – and interest rates jump to 3.0% (currently rates are even higher according to Bankrate.com). In this scenario, you’re paying $108 more ($969 a month) for that same mortgage loan. Or, assuming a 12% home value increase, that same monthly payment spikes to $1,005 at 3.0% interest and $1,071 at 3.5% interest (which is just shy of the 3.4% average rate the Mortgage Bankers Association predicted for 2021).
Put another way, if you wait a year to purchase a comparably priced home at today’s sale prices and your monthly mortgage rates continue to jump, as previously described, you’ll pay much more per year. This can add up to tens of thousands more in payments over 30 years.
Plus, you will have lost a year in which you could have started earning equity on your real estate purchase.
For these and other reasons, many experts recommend buying sooner versus later.
“Now is for sure the time to act on a home purchase. Low interest rates and rising values make for an opportunity and also a danger zone if you don’t act,” says Ralph DiBugnara, founder of Home Qualified in New York City. “Prices will eventually stabilize, but not soon. A national inventory shortage of homes for sale is going to continue to create bidding wars on homes for the foreseeable future.”
Jimmy Hughes, real estate broker/founder of JMR Realty in Edmond, Oklahoma, subscribes to that theory.
“Homebuyers who are positioned to make a move right now are encouraged to do so. Interest rates are beginning to rise, and they are projected to continue on this trajectory throughout 2021. Sit on the sidelines, and you’ll pay more in the long run,” he cautions.
Brittany Love, a real estate broker for Realty of One New Mexico in Albuquerque, says the urgency may be even more significant for renters.
“Since 1988, the average rent has increased at a rate of 3.5% per year, according to the National Association of Realtors,” she notes. “Meanwhile, for a home priced at $425,000, after five years of ownership, you will likely have over $165,000 in equity.
When was the last time you earned $165,000 by paying rent every month?”
But not everyone is convinced that waiting is the wrong move. Jeremy Sopko, co-founder/ CEO of Cleveland-based Nations Lending Corporation, insists that the housing market – like the stock market – cannot be timed, and many prospective buyers put too much emphasis on locking in the lowest interest rate.
“It’s not a secret that rates are going to go up. But is that the reason in and of itself to jump into the housing market? It’s not worth jumping in prematurely to get a low rate if you are not quite financially ready,” he recommends. “Don’t force yourself into a situation just because you’re worried about what might happen down the line. The housing market is just as likely to cool off as it is to heat up. Listen to your wallet, make a plan, and make a budget.”
That being said, if you can afford to take advantage of the historically low interest rates we continue to enjoy, you’ve saved up a sufficient down payment, you have several months of cash savings in reserve to cover your essentials and the unexpected, and can expect strong job stability, “pull the trigger. Start an application and lock in your rate now,” adds Sopko.