The US Housing Market has seen nearly unprecedented activity in the past 2 years, devouring inventory and sending prices skyward. Many buyers are beginning to lose hope, choosing instead to “wait it out” for prices to drop.
Though it seems prudent, market data and projections suggest waiting might cost buyers more in the long run.
Home prices are projected to keep rising
According to the S&P CoreLogic Case-Shiller US National Home Price Index (quite the mouthful), home prices rose 18.8% in 2021. This should not be a surprise to anyone who has been following the market recently.
Looking forward, experts predict prices will continue to increase.
Goldman Sachs, among others, forecasts home prices to increase by another 16% by the end of 2022.
Financing a new home is also projected to become more expensive
In addition to rising prices, the cost of buying a new home is likely to increase as well. At least, for buyers who plan to use a mortgage to finance their new home.
Just a few weeks ago, the Federal Reserve increased US interest rates by 0.25%— and announced plans to increase interest rates by another 2.5% or more by the end of 2022.
Those might seem like modest increases. However, when applied to a 30-year mortgage for $500,000 home, that could mean an added $856 in principle and interest payments every month (source: mortgagecalculator.org).
Renting may cost you money in the long term, even if home prices come down
There is a growing trend amongst frustrated buyers to rent a home or apartment while waiting the market to cool. The problem, as detailed above, is the market is not expected to cool any time soon.
And once it does, interest rates will almost certainly be higher.
To be sure, this is not an issue for everyone. Buyers making all cash offers will not be affected by an increase in mortgage interest rates. They will, however, feel rising interest rates ripple into other areas of everyday life (like interest on credit cards, other variable loans, and other investment income).
How likely are you to lose money waiting? In part, it’s a function of listing price
Buyers looking at properties currently listed at or above $1.5M may have less to worry about.
To illustrate, imagine such a buyer anticipates home values in a particular neighborhood to fall by 5% within the next 12 months. Let’s assume annualized rental payments, moving expenses, and other related costs total $40,000. By renting and waiting, this buyer positions herself to save $75,000 on the future home purchase—a net gain of $35,000.
Contrast that with another buyer anticipating a similar 5% drop on a $350,000 home. That’s just $17,500 in savings. Under the same assumptions, this buyer effectively loses $22,500.
These numbers are entirely hypothetical, to say nothing of the ever-changing market conditions and the very real possibility of losing your dream home by waiting. But the point is clear: A decision to wait things out should always be made by running the numbers. Specifically:
- What is the anticipated future cost of the home;
- When will it be available to purchase;
- How much will it cost to rent until then, and;
- Will the cost of renting be less than the anticipating savings?
If the answer to the final question is No, you will lose money playing the waiting game.
About Diana Fischer
Diana moved to Sarasota in 1990 from New Jersey and started her real estate career in 2008 with Michael Saunders & Company.
She has a background in preparing and negotiating government contracts. Her previous experience also includes the medical field where she developed her listening and human relationship skills which have proved vital in real estate.
She understands that buying or selling a home is one of the most critical decisions people have to make. That is why she feels it is important to listen to concerns and objectives. This enables her to tailor the process to each individual. It is through her dedication, perseverance and compassion that she meets the expectations of customers.
Her designations include GRI and Green. While she loves cooking, entertaining, traveling and reading, her passion is Crossfit.
Interested in buying or selling your home? Contact Diana today!
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Sources for this article include:
Lawrence Yun, Chief Economist & Senior VP of Research NAR
Brian Buffini, Buffini & Co.
Florida Realtors® with data compiled from Stellar MLS
