Buying Now Compared to the next few years is not great idea

I am sure you have heard from a lot of people as to why it is better to buy a home now as opposed to waiting 2 years. Here is the math to back this statement up. I can run specific scenarios for you and your clients if you are interested.

Let’s start with a table which shows the impact waiting can have on your buyers:

Rates have been hovering in the low 7% range. This is causing buyers to step back from their dream of homeownership and wait for rates to go down in the next two years.

problem is that home values are anticipated to appreciate during those two years and beyond, making a home purchase more expensive over the long term, even if rates are lower down the road.

we have been receiving reports over the last week about home appreciation:

• Black Knight reported that home prices are on track to show appreciation gains of 7.5% this year if the current pace continues. 99 out of 100 cities across the country showed this level.
• Corelogic just reported that home price appreciation gains will equate to just under 9% this year.
• Lawrence Yun, Chief Economist for NAR stated 7% appreciation is the general level for this year and most of next year with a return to 5.5% to 6% within two years. He also stated that home prices are expected to increase 15-25% over the next 5 years.

Now it’s time to break down the table above:

Let’s say that you have a buyer that is looking at homes in the $500,000 range. There are two routes they can take in their search for a new home.

The first scenario is buying a home now at today’s rates and planning on refinancing in two years when rates go down. The average cost of refinancing is approximately $4500.

The second is waiting 2 years for rates to go down into the low 5% range. Property values will continue to appreciate during this time making it more expensive to buy a home.

In the table above I analyzed what happens to the value of that $500,000 home.

You can summarize in this table that waiting two years will have the following impact:

• The same house will cost approximately $72,450 more to purchase in two years.
• The monthly payment will be $276 higher after waiting 2 years to buy at a lower rate when comparing this plan to buying now and refinancing when rates are lower.
• If you look forward to 5 years you have even more of an advantage with the two scenarios:

o   You will have $60,866 more equity if you buy now, this includes reducing the equity $4500 for the cost of refinancing. This does not include the savings for the lower monthly payment.

o   You will be two years ahead in the amortization schedule for the refinanced loan. The numbers for refinancing following a 28-year amortization schedule as opposed to the full 30 years scheduled with purchasing a home in two years.