If I told you that super-cute sweater you were looking at was going to cost 10% less tomorrow, you’d wait to buy it. Of course you would. It’s 10% and one day. Smart move.
If you’re taking that same approach when you’re looking to buy a house, you could be making a costly mistake.
There are no doubt some good reasons to wait if you’re thinking about buying a home. We are coming to the end of (or perhaps just past the finish line, depending on whom you believe) of an unprecedented sellers market in which the price of homes increased sharply, thanks to historically low interest rates.
On top of higher prices, many people who have been in the market to buy a home for a while are just plain tired of getting beat out in bidding wars. They have fallen in love with home after home after home, only to lose them to another person who offers even more above list price than they did. That stuff hurts. I get it.
There’s a strong case to be made to get off the sidelines and back into the game if you’re thinking about buying a new home. It all starts with what we were just talking about. Sellers aren’t getting offers above list price in many situations, and bidding wars are mostly a thing of the past.
But the heart of the case to buy now rests in your pocketbook. Yes, it’s quite possible that home you’ve been salivating over might cost less six months or a year from now. But the cost of borrowing money will likely be much greater.
Interest rates are already on the rise, bouncing off their lows in the mid-2% range and already above 3% for a 30-year fixed mortgage. Some analysts are predicting rates over 4 by the end of 2022. If I were placing a bet, that’s where I’d put my money.
It makes sense to wait to buy a sweater that’s going on sale tomorrow for 10% less. You’re not borrowing money to pay for it. But assuming you’re not bringing cash to the closing, you’ll be relying on a bank to lend you money for the purchase of your home.
With higher interest rates come higher monthly payments.
Take a look at this example:
In this extremely possible scenario, a $350,000 home may, indeed, drop in price to $300,000. But because of higher interest rates, your monthly payment ends up being $138 more. For many, that’s a dealbreaker. They simply can’t absorb the additional hit to their monthly budget.
But it gets worse.
Banks lend money expecting to be paid back, and bankers get a little cranky when they’re not. They might think you’re an acceptable risk when your monthly payment is $1,382 a month. But for every 1% increase in rates, banks typically will loan you 10% less money. Whereas once you were able to get a $270,000 loan in our scenario above, you’re now able to get only a $243,000 loan.
That $27,000 might be the extra bedroom or bathroom or bigger property that was the reason behind your desire to move in the first place.
So yes, the saying “good things come to those who wait” is true in many, many situations, but for this one, I think a different adage applies: Fortune favors the bold.
The Allen Brake Team’s Calm & Confident Home Sale pledge is a 10-point promise from us to you, designed to take the stress out of the experience while making you the smartest person in the housing market. For more information, call (314) 375-3030.