Why Waiting to Buy a Home Might Be More Expensive Than You Think.
In the realm of decision-making, procrastination tends to rear its head more prominently when faced with substantial choices, and the consequence of doing nothing can be significant. In today's dynamic market, characterized by a global pandemic, financial volatility, and rapidly escalating home prices, it's understandable that potential homebuyers may adopt a 'wait and see' approach.
However, the price of waiting might be higher than anticipated. The recent Home Price Expectation Survey for 2022 projects appreciation rates ranging from 2.6% to 4% between 2024 and 2026. This means that delaying a home purchase could mean missing out on potential value growth.
For those who are renting or postponing a move to a larger home, there's a potential opportunity cost associated with foregone appreciation. While keeping your down payment in the bank might yield expected earnings of less than 2%, owning a home provides leverage when a mortgage is used to finance the purchase.
Buyers, despite borrowing a significant portion of the purchase price at rates above 6%, benefit from the real value of the home appreciating at a higher rate. This results in the accumulation of profit and the building of equity for the homeowner.
An additional advantage for homeowners is the amortizing mortgage, which reduces with each payment. As the home's value increases due to appreciation, the unpaid balance decreases through principal reduction, creating equity from two directions.
To illustrate the potential cost of procrastination, consider this: if you wait one year to buy a $350,000 home today, the price could easily escalate to $378,000. A 10% down payment on this home today is $35,000. If that amount is invested with a 2% return, it would be worth $35,700 in one year. However, if used as a down payment on a $350,000 home appreciating at 3%, the equity in one year would be $49,157.
Mortgage experts predict that rates will settle near 6% by the end of 2023, similar to the current 30-year rate. However, even modest increases in home prices can lead to higher payments. The real difference may emerge in specific markets that surpass the expected national average. Depending on your intended duration of stay in the home, this could significantly impact the overall housing cost.
To better understand the potential outcomes based on your circumstances, consider running projections to evaluate the long-term implications of your decisions in the ever-evolving real estate landscape.
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