[original article posted in FinTalk by Fintoolbox]
What’s going to happen with mortgage rates is what is going to happen with mortgage rates. Predicted to still come down at some point later this year. Why would I want to buy a house today? Why not just wait? There’s a variety of reasons why you may want to purchase today versus waiting it out for another five or six months. Let’s look at the three that I find most compelling and why I believe homes are the cheapest they will ever be again right now.
The primary reason to consider buying a home today is the math makes sense, which supports strong financial reasons. As we’ve exited the first quarter of 2024, home prices have risen by 6% year over year. For instance, a home valued at $450,000 today could appreciate by $27,000 to $477,000 in the next year if this trend continues. This potential for appreciation, given the ongoing shortage of available homes relative to the number of new people entering the market each month, presents a compelling financial opportunity.
Moreover, when examining the financial specifics, if you were to purchase this home with a 5% down payment, the monthly payment difference between a 7% and 6% interest rate is merely $127. Over a year, this equates to an extra $1,527.66 in payments against an equity gain of $27,000. Additionally, should interest rates decrease, you would be in a good spot to refinance, potentially shedding or decreasing the private mortgage insurance and further decreasing your monthly payment. Even if interest rates stay the same, you would still benefit from significant asset appreciation. Thus, from a numerical analysis, if you’re managing your family’s finances like a CEO or CFO, buying a home now is a sound decision based on expected appreciation.
The second compelling reason to consider buying a home now relates to anticipated changes in interest rates and market dynamics. As interest rates are expected to decline, an increasing number of potential buyers are postponing their purchases, hoping to capitalize on lower rates. However, this strategy may not be as beneficial as it seems. With high interest rates currently discouraging some from buying, those who do decide to enter the market face less competition and possibly more homes to choose from. Even in the face of higher rates, homes are selling in around 30 days, and inventories have not increased.
If rates eventually drop, we can expect a sharp increase in home values due to increased demand (more buyers) and the continued shortage of available homes. This could make it difficult for those waiting on the sidelines to find their ideal home, or anything close, once they decide to enter the market. The scarcity of properties could and will likely lead to bidding wars and potentially overpaying for a home. Therefore, it might be wise to start looking for your ideal home now and be prepared to act quickly when the right opportunity arises rather than waiting and facing heightened competition and prices later.
The third compelling reason to buy a home today is the significant expansion of programs aimed at assisting first-time homebuyers. In the first quarter alone, we’ve seen an increase in these initiatives, with the number of first-time homebuyer programs rising from approximately 204 to nearly 2,400 nationwide. These programs, which are available across the country, offer various incentives such as down payment assistance, making homeownership more accessible.
Moreover, these initiatives are expanding to include not just traditional single-family homes but also manufactured and multifamily homes. This broadening of scope allows prospective buyers to consider properties that also offer potential rental income, such as multifamily units where buyers can live in one part and rent out the other.
As these programs continue to grow in number and variety, we can expect continued pressure on housing inventories. This is further compounded as more families are formed and large equity firms increasingly invest in multifamily and investment properties. This environment suggests that now is a prime time to take advantage of these programs and secure a home before competition and prices potentially rise further. For detailed insights, you can refer to the Down Payment Resource Q1 2024 Homeownership Program Index Report.
In summary, there are several reasons why waiting for lower interest rates might not be the best strategy for buying a home. Firstly, from a logical standpoint, buying sooner rather than later allows you to benefit from home appreciation earlier. The impact of a 1% difference in interest rates, while significant psychologically, translates to just a few hundred dollars more per month in payments, which isn’t substantial over the long term.
Secondly, the psychology of waiting can lead to missed opportunities. Many potential buyers are currently sitting on the sidelines, but when they eventually enter the market, we’re likely to see a significant surge in demand and property values. If you wait too long, you might find yourself facing great interest rates but no available homes to purchase, which is a worse situation than buying now with higher rates.
Additionally, today, there are numerous incentives, such as down payment assistance programs and other resources, to help buyers enter the market. These programs are time-sensitive and have limited funding, so taking advantage of them now is wise while the funds are still available.
Essentially, the best time to buy a home is now, as prices are probably only going higher from here. Connecting with a mortgage pro to help you navigate all your options effectively today is the first step. Come up with a home plan to purchase the home and set yourself on a path to successful home ownership. Control what you can control, and if interest rates drop later, refinancing is always an option. However, if they don’t, continuing appreciation will still benefit your investment.
Now is the time to realize the American Dream!