These last few months have been particularly tough for buyers due to the rapid increase of interest rates. For some, it meant they could no longer afford a home in our area. For others, it became a waiting game to get the best deal.
The secret, though, is that waiting rarely (if ever) pays off when it comes to real estate.
We are approaching a turn for the better as far as rates go, but it is still advantageous to purchase now before the influx of more confident buyers drives housing prices even higher. What you'd gain in home appreciation far outweighs the savings in interest, especially if you take advantage of refinancing.
Potential benefit case study if a client were to purchase now vs waiting one year:
Home value: $500,000
Mortgage amount: $400,000
In the most recent similar interest rate situation in our history (2012), home prices rose 8% year-over-year after rates "bottomed out." As inventory is significantly tighter now, we wouldn't be surprised to see these high numbers again, but let's go easy and say home appreciation is only 3% YOY. This rate is also reasonably believable for a less volatile market.
As there is less competition now, there's also opportunity to negotiate home prices. It is likely buyers could get a 2% discount. (This could also be applied as a temporary rate buydown or in other exponentially beneficial ways, but we'll just say they get a flat 2%.)
Home appreciation: $15,000 + Discount Opportunity 2%: $10,000 = $25,000
Once rates are down, we would highly recommend buyers refinance to reduce their payments. This would cost roughly $5000 or less for this home (which can be paid through financing).
YOY Benefit: $25,000 - Refinance: $5,000 = $20,000 total benefit
Say you wanted to wait a year for rates to go down 1%. Let's calculate what that 1% difference would be on a 30 year fixed rate mortgage for this home.
Monthly payment increases on a 30 year-fixed rate mortgage: $257
What that increase costs over a year: $3,084
Even if buyers aren't able to get the 2% discount, the benefit of home appreciation significantly outweighs waiting for rates to go down, especially if they utilize refinancing to adjust their monthly payments to the new lower rates.