The simple answer is “now is good”. And I don’t say that because I make a living selling homes. I look at what’s happening in the market.
2 Reasons Why
- You are financially better off purchasing now as prices continue to increase.
- If interest rates were to increase, it will reduce your purchasing power. For every 1% increase in interest rate, you lose 11% in Purchasing Power.
A Simple Example
Let’s take a look at a simple example for a Renter.
- It’s January and you’re on the fence about buying.
- You are currently paying $2,000/month in rent.
- You qualify for a maximum purchase price of $375,000.
- You find the perfect house for $375,000 but decide to wait until June for a better deal.
Now it is June. The home you liked the other day is no longer available because it was priced right and sold quickly. Now, the median home prices have gone up. If the market continues the way it has in the past, by June, prices could increase by 6% – 11%. Also, some lenders are thinking there could be a ½% increase in interest rates. So now where does that put you?
- Lost Equity (Assume 6% increase): $22,500 (that $375,000 house is now worth $397,500)
- Lost Rent: $2,000 X 6 Months = $12,000
- Lost Purchasing Power: $20,625 (Your maximum qualifying purchase price dropped from $375,000 to $354,375, 5.5% reduction)
If interest rates do not change, you would see $34,500 in lost opportunity by waiting 6 months, $12,000 for 6 months’ rent and $22,500 in appreciation. If interest rates go up by ½%, you could lose $20,625 in purchasing power as well, for a total of $55,125 in lost opportunity.
What If You Own Your Home?
If you own your home and are looking to move up, the above example is still very close. For this scenario, you would lose the $22,500 in appreciation and if the interest rate goes up by ½%, you could lose $20,625 in purchasing power for a total of $43,125.
Urgency in the market today is rewarded. It can save you anywhere from $22,500 to $55,125 or more.