The Cost of Waiting to Buy a Home
“We’re going to wait until the mortgage market collapses to buy a house,” says a friend of mine.
And, she is not alone. I hear this all the time with different excuses every time. They’re either waiting for the market to crash; or they say home prices are at the peak and the only way they’ll go is down; or the inventory of homes available for sale is increasing and it’s bound to bring the prices down next year.
I’m not saying they’re wrong. Some of their predictions may come true. Who can truly predict the stock market or the housing market? Definitely not someone from the general population that this article addresses. So, how long do you wait? Even if it happens, would you really know when to buy to get a good enough bargain for all that time you waited? These are some of the questions you need to answer before you decide to postpone buying a home.
I’m in no way pushing you to buy a home now as many a real estate agents or lenders may do. All I’m suggesting is to look before you leap…or rather investigate before you delay! Here are some things to consider before you decide to buy now or wait for another time:
Right now, interest rates are still lower as compared to the good times when the interest rates were sky high, but the predictions are only for rates to go up. Freddie Mac predicts the rates will go up to 5.1% by the end of 2019. CoreLogic predicts the rates will go up by 4.8% over the next year. So, waiting for next year may increase your monthly payments by a couple of hundred dollars and you’ll end up paying over tens of thousands more for a 30-year mortgage.
Here’s a calculator to see if buying now makes sense against buying later. Plug in the interest rate numbers now and then what it’s predicted to be later to see if it all makes sense:
Years at residence
This is more comparison for people that are renting and putting off buying a home. The chart below shows that the longer you intend to stay in a house, the better it becomes to buy a home instead of renting one…specifically from year 8 onwards.
Other than a catastrophic crashing of the mortgage market, the prices of homes will keep on rising. Some years, due to a variety of reasons including but not limited to surplus available home inventory, the prices may stay steady, go down a little, or even rise a little. The rising prices will bring in a higher monthly payment to add to already higher monthly payments brought on by higher interest rates as explained above. It may still make sense for you to wait, but all I’m saying is don’t guess…investigate!
Some reasons to delay the home buying decision (not every reason may not apply to you):
- Lack of money for a down payment. There are ways to buy home for as low as 3 or 3.5% down.
- Money for closing costs. There may be ways to ask sellers or lenders to pay part of the closing costs.
- Job security.
- Family event(s) such as starting a family or children going to school.
- Wanting to move to a more favorable area before buying a house.
All in all, it makes little sense to wait for a later date to buy a house, if you are willing and able to purchase one at this time. This article is only for informational purposes. I’d recommend you talk to a trusted real estate agent or lender to help you draw up a “waiting to buy” cost analysis, which may help you decide to buy now or wait for a little while. Whichever way you decide to go, good luck with your journey to the American dream.