The Cost of Waiting To Buy

Many of us have had the experience of shopping on a website to see something that was on sale.  We were interested, but if there wasn’t a sense of urgency, maybe we didn’t get back to it for a few days.  When we finally did go back to the website, the price on the item had returned to its regular price.

How did that make you feel when that happened?  Did you go ahead and purchase it for the current price?   If you had acted more decisively, could you have saved money and had the product by now?

In 2021, homes across the United State went up 19.1% on average.  There were some markets where the prices soared 30 to 40%.  Fortunately, last year the mortgage rates did remain relatively stable but that isn’t the situation this year, in 2022.

At the end of 2021, economists from Fannie Mae and Freddie Mac, felt like prices would go up around 7% for 2022.  The Mortgage Bankers Association and the Home Price Expectation Survey predicted more like 5% and Zelman Research and the National Association of REALTORS® forecast closer to 3%.

While the number of sales did decline at the end of February 2022 to 7.2% month-over-month and 2.4% year-over-year, that could be explained as a lack of houses for sale.  In the same month, inventory was 1.7 months nationally, which is down from 2 months in February 2021.  (Locally the current inventory is less than 1 month). The median sales price had a year over year increase of 15.0% to $357,300.

The Fed had their first of what may be four or five interest rate hikes this year to try and get control of the inflation rate.  We have already seen mortgage rates at the 4.5% price and that is for borrowers with the best credit.  Those with less than sterling credit can expect to pay more.

It is anyone’s guess at where rates will end a year from now, but many experts think this decade of low rates is over and we’ll not likely to see them again.

There is a pent-up demand for houses to buy and an urgency to buy before the rates get higher.  If a buyer waits a year to purchase a home but the price goes up by 5% and the interest rate goes up by 1%, it will have a dramatic effect on the payment.

  5% price increase10% price increase
Sales Price$400,000$420,000$440,000
Mortgage$360,000$378,000396,000
Current Rate vs Possible 1.00% increase4.5%5.5%5.5%
Monthly Payment$1,824$2,146$2,248
Payment Difference $322.18$424.38
Additional Cost for 7 years $27,063$35,648
Additional Cost for 30 years $115, 983$152,776

If the appreciation is closer to 10% increase, the negative effect of waiting is exacerbated.

The equity in a person’s home contributes greatly to their overall net worth and wealth position.  The effect is very apparent in contrast to renters compared to homeowners whose net worth is 1/40th of the homeowners $300,000 or $8,000 for the renters.

As people stair step their way into larger homes to not only meet their increasing demands but also to enjoy the amenities of a nicer home, the equity will continue to grow based on two dynamics: appreciation and equity-build up.  However, renters do not benefit from either of these.

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