Still waiting to buy a home? That’s a strategy. But depending on your circumstances, it might not be the right strategy.
The cost of buying (or not buying) a home is usually based on two distinct variables: the asking price and the interest rate. Right now, both are on the way up. But let’s imagine that’s not the case. Would you still wait?
Perhaps you want a great neighborhood with excellent school districts to start a family in. Or maybe you want to be within easy walking distance of shops, restaurants and culture — or away from all that stuff if you’re looking for a bit of privacy. Whatever your reason for buying, you need to decide if it’s worth waiting — or if buying sooner rather than later could lead to substantial savings.
Let’s look at some good reasons why you and your family might be purchasing a home this year and consider if now’s the right time to put the wheels in motion.
REASON TO BUY #1:
Home prices are still going up
Home prices continue to reach new highs, and the market shows few signs of slowing in most of the country’s metropolitan areas. Many homebuyers are putting off buying a home, thinking that the seller’s market can’t last forever. They are right; the market will eventually favor the buyers. Just not everywhere.
According to CoreLogic, home prices surged in 2021 surged to a 15% annual increase over 2020. This is 3X the average rate seen in the previous decade. Much of this is due to the “Great Reshuffle,” as remote work allowed many people to move out of urban areas and live just about anywhere.
Home price gains are expected to slow in 2022, averaging a little less than 10% growth for the year. But that still means that prices are still going up, depending on where you’re looking to buy. If you have a growing family or need to make the move that can’t be put off, waiting — even just a few months — may not be the best strategy.
REASON TO BUY #2:
Interest rates can’t stay this low forever
Interest rates just jumped a bit earlier this year, and most experts predict that they’ll rise again over the next 12 months. But, current rates are still excellent from a long-term view, even if they’re breaking through the psychological barrier of 4%. As of this writing, Freddie Mac’s Primary Mortgage Market Survey showed that interest rates for a 30-year mortgage held below 4% for all of 2021. We got used to that, but remember, rates were well above 4% as recently as 2018 and 2019. In fact, before the 2008 crash, a “good” rate was still above 5%. And in 1981, rates on a 30 year fixed mortgage spiked at 18.57%! Yikes.
Most experts predict that they will begin to rise over the next 12 months as we deal with inflation, supply chain issues and the economic impacts of the war in Ukraine. An increase in rates will impact monthly mortgage payments, so if you’re holding off waiting for the rates to come back down under 3%, that may be the wrong strategy.
REASON TO BUY #3:
It’s a “forced” way to start saving
With every monthly mortgage payment made, a portion goes to the loan’s principal. Rather than thinking of this as shelling out money every month to pay down your loan, think of it as a ready-made savings plan: by building equity in your home, you’re actually paying your future self every month. That money will be there for you when you’re ready to retire or need it for home improvements, a kid’s college tuition or some other big expense.
Remember, you’ll never see the money you pay towards rent again — that’s cash thrown out the window. But when you eventually sell your home, all that equity money can be yours (married couples can exclude up to $500,000 of the home equity from capital gains tax, single owners can exclude up to $250,000). That’s pretty sweet.
REASON TO BUY #4:
The best time to start building wealth is today
Many people are uncomfortable with the idea of a mortgage. But unless you’re still living in your parent’s home rent-free, you’re already paying a mortgage — your landlord’s.
As mentioned in reason #3, a homeowner’s monthly home loan payment is a form of ‘forced savings wrapped up in the accrued home equity. On the other hand, renters are only contributing to the home equity of the landlord. That’s no fun.
Besides, rents can go up (and rarely go down.) That’s of no benefit to you. You also don’t get to benefit from home appreciation. When you own your place — and get a fixed mortgage — you know for sure what your monthly housing cost will be for the next 30 years. Taxes and utilities may rise, but not your principal and interest payment. And, over the long term, you’ll most likely benefit from property appreciation. Together, that’s a decent strategy for building wealth.
REASON TO BUY #5:
Create a reliable and predictable living situation
If you have your heart set on a specific state, town or neighborhood, there’s more stability if you own, rather than rent, there. As we mentioned, rents usually only go up. This means what you pay in rent now will look like a bargain in 10 years when you’re paying a lot more. Plus, landlords can be good or not-so-great. Some will keep a place in tip-top shape, and others will put off repairs (or charge you for them) that could make your day-to-day a living nightmare. And in many states, renters can be evicted for a variety of reasons and without much notice — especially if a landlord decides to sell the property. You might even have to move from the neighborhood you and your family have grown to love.
Contrast that with owning your own place. Homeownership — even if it’s a condo — offers more financial security, family stability and opportunities for wealth building that renting can’t compete with.
So, if you see yourself putting down roots, raising a family and seeing them through to college — and even after — in one place, and you can afford your dream house there today, buy it. Waiting five or ten years will see you spending much more money and having far fewer memories to enjoy in your golden years.
Talk to a local loan officer or apply online
If you’re a prospective first-time homebuyer and thinking of buying in the coming months, reach out to one of our local loan officers to discuss which mortgage would be best for you. Or, if you’re ready to get started, apply online today!