'Back to school' time feels like a new year for many people, a time when they think about making plans that sometimes include a move… should it be now? next spring? just keep renting?
Fall also brings thoughts of impending winter… will it be as bad as last year?! That alone can stop people dead in their tracks… or give them a big push to move BEFORE the snow flies!
But what about the actual $ cost of waiting? Is that even worth considering?
Prices typically fall in the winter and rise in the spring, regardless of market conditions. Inventory levels also typically fall during that time so you may not have as many choices, but if you don't have to sell before you buy and you can find a home you like it can be the most cost effective time to buy… and if you buy in the fall prices are typically not as low as winter, but neither is the supply so you have more choices… also can be a good time to sell because there is not as much competition.
We have been spoiled with historically low interest rates for longer than anyone ever dreamed possible… but they will inevitably rise again, just as home prices and rents are increasing.
Does it really make much difference from a financial standpoint if you buy now or just wait a year?
As an example, let's say your dream house costs $250,000 today and you can get a mortgage at 4.25% interest with 5% down. Your monthly mortgage payment of principal, interest and mortgage insurance (not including taxes and homeowner's insurance) would be about $1,291.
Let's say you wait until next year… year-to-date increase in median sale price in the Twin Cities metro area is up 7.5% year-over- year. Applying that current trend, next year's price for the same house could be $268,750.
Economists are predicting that rates will likely rise to at least 5% next year, some predict even 6%. Let's be conservative and say rates rise 1%, to 5.25% (still historically very low!). With a purchase price of $268,750 at 5.25% interest, your monthly payment for principal, interest and mortgage insurance would be about $,1542.
That's a monthly difference of $251! That can make a big difference on your budget and the home you can afford to buy.
Of course this is all conjecture and prices and interest rates may not rise that much, but the takeaway is that market changes can make a big impact on your pocketbook and buying power.
A Zillow press release from last week stated that rental affordability is worse than buyer affordability… the opposite of what it was in pre-bubble years…
- Nationally, renters paid 29.5% of their income to rent in 2nd quarter 2014
- 24.9% was paid in pre-bubble years
- US home buyers paid 15.3% of their incomes to a mortgage on a typical home
- 22.1% was paid in pre-bubble years
If you are seriously thinking about buying a home, it's time to ask yourself what is holding you back.
Sharlene Hensrud, RE/MAX Results – Buyer's Agent