(Photo by Matthew Henry from Burst)

With the state of the market today, some buyers are wondering if it doesn’t make sense to wait to buy a home and see if the future brings more inventory and better prices while still offering advantageous mortgage rates. Deciding on the right time to a home can be a stressful decision, so many people are sitting on the fence trying to figure out if now is actually a good time… or if circumstances may possibly be better in a few months.

What to Consider Before You Wait to Buy a Home

Questions to Ask Yourself

To determine if you should buy now or wait to buy a home, you should ask yourself two basic questions. First, what is your gut feeling about whether home values will be higher a year from now? And second, do you honestly think mortgage rates will be higher or lower a year from now?

Home Value

Historically, home values have tended to rise over time, though it’s true that recessions and other disasters can lead to slumps and lower prices. Following dips, home values also usually increase in some areas of the country due to strong demand and low supply, while in other areas they struggle to rebound. So it’s not really possible — even with data — to attempt to predict exactly whether values in your area will appreciate or depreciate. Even so, annual home prices have seen a 25-year average growth of 3.9% overall.  

Obviously, prices vary between states, cities, and even neighborhoods, so focusing on national trends isn’t always useful, but if you believe that home values are going to be higher in the future, there is an opportunity cost to wait to buy a home. 

Mortgage Rates 

Mortgage rates are dependent on a number of factors, such as the overall direction of the economy, the rate of inflation, competition among lenders, and policy decisions of the Federal Reserve Bank. Over the last year or so, the average 30-year fixed mortgage rate has hovered near 3%. 

Experts believe rates will rise as the economy recovers, but some have a bleak economic outlook. Three major mortgage entities — Freddie Mac, Fannie Mae, the National Association of Realtors — all project first-quarter rates to reach only 3.5%, and the Mortgage Bankers Association is only slightly higher at 3.9%. 

Still, if mortgage interest rates don’t rise, that is not bad news for buyers. The economy may not be booming back into action, but a stagnant rate keeps the purchaser’s costs down. 

However, it can also be bad for homebuyers when rates are low because while it may reduce their mortgage interest costs, low mortgage rates also have an indirect effect on increasing home prices. Why? Consumers are usually willing to take on more debt when credit is cheap. Consider the rates before you wait to buy a home.

What Happens If Both Go Up?

Since low mortgage rates may indirectly increase home prices, it would make sense that rising mortgage rates could impact the prices of homes for sale in the other direction, right? You might think it would make these homes less affordable, but actually, the relationship between house prices and interest rates isn’t that strong — the correlation that is stronger relates to mortgage rates and the economy. 

Generally, mortgage rates tend to rise when the economy is experiencing growth. In this environment, buyers have better jobs with higher wages, so they can afford more and are more willing to take out a larger mortgage.

So what happens when both home values increase and mortgage rates increase is that a buyer will pay a lot more in mortgage payments each month because their monthly principal and interest payments will both be higher. Therefore, as a result of waiting, a potential buyer may have to both offer more as a down payment and borrow more just because they waited a year to buy their home. 

Holding off will also cause the buyer to lose out on the amount of equity that the home would have appreciated over the time they waited to make their purchase. As homeowners saw when properties appreciated so much over the last year, that could be a small fortune! 

So should you wait to buy a home?

Circumstances are different for every buyer, but prospective homebuyers should consider the financial benefits they may enjoy by purchasing now instead of waiting until next year…. or even next month. Of course, there might be benefits if you wait to buy a home.

Obviously, if home prices and mortgage interest go down, the economy won’t be in a very good place, but buyers might find excellent deals on a home. Home values going up without interest rates rising is also unlikely in a strong economy. And as mentioned, low mortgage rates tend to increase home prices.

So if you anticipate that either — or both — of the measures will be increasing in the near term, contact LIST WITH ELIZABETH® and let’s find you a home now!