Are you waiting to buy because you think home prices are falling? Are you aware of the hazards of timing the housing market? Do you know that rising interest rates can erase any gains made from a lower price?
Most people, when first shopping for a home, look only at the cost of the home. They look at interest rates, or “the cost of money,” only after negotiating the purchase price. In reality, though, most homeowners are more restricted by the monthly home payment – directly related to interest rates – than they are by the total cost of the home.
If interest rates rise, as they did the latter half of 2018 and might again this year, waiting for a lower sales price might not benefit your monthly payment!
The 30-year fixed rates, as of this writing, is approximately 4.5% (4.617 APR). If rates rise to 5%, home prices would need to drop 5% to compensate for the increased monthly payment. If rates were to go to 5.5%, you would need a 10% lower home price to compensate!
| BUY NOW OR WAIT? | SCENARIO 1 Home Prices Decrease5%, Interest Rates Increase 0.5% |
SCENARIO 2 Home Prices Drop 10%, Interest Rates Increase 1.0% |
| Home Price $800,000 | Home Price $760,000 | Home Price $720,000 |
| Interest Rate 4.5% | Interest Rate 4.725 | Interest Rate 4.95% |
| Payment $3,243.00 (20% Down Payment) |
Payment $3,163.00 (20% Down Payment) |
Payment $3075.00 (20% Down Payment) |
Are you willing to gamble that home prices will drop 10% and interest rates won’t increase?
Of course it also possible that home values continue to increase, though at a slower rate than in the recent past. If that happens and rates click upwards, then where are you?
The best time to buy a new home is when you are ready. When your finances are stable, you are pre-qualified at a payment level at which you are comfortable, and you find a home that meets your needs.
