If you’re a renter with a desire to become a homeowner, or a
homeowner who’s decided your current house no longer fits your needs, you may
be hoping that waiting a year might mean better market conditions to purchase a
home.
To determine if you should buy now or wait, you need to ask
yourself two simple questions:
What will home prices be like in 2022?
Where will mortgage rates be by the end of 2022?
Let’s shed some light on the answers to both of these
questions.
What will home prices be like in 2022?
Three major housing industry entities project continued home
price appreciation for 2022. Here are their forecasts:
·
Freddie Mac: 5.3%
·
Fannie Mae: 5.1%
·
Mortgage Bankers Association: 8.4%
Using the average of the three projections (6.27%), a home
that sells for $350,000 today would be valued at $371,945 by the end of next
year. That means, if you delay, it could cost you more. As a prospective buyer,
you could pay an additional $21,945 if you wait.
Where will mortgage rates be by the end of 2022?
Today, the 30-year fixed mortgage rate is hovering near
historic lows. However, most experts believe rates will rise as the economy
continues to recover. Here are the forecasts for the fourth quarter of 2022 by
the three major entities mentioned above:
·
Freddie Mac: 3.8%
·
Fannie Mae: 3.2%
·
Mortgage Bankers Association: 4.2%
That averages out to 3.7% if you include all three
forecasts, and it’s nearly a full percentage point higher than today’s rates.
Any increase in mortgage rates will increase your cost.
What does it mean for you if both home values and
mortgage rates rise?
You’ll pay more in mortgage payments each month if both
variables increase. Let’s assume you purchase a $350,000 home this year with a
30-year fixed-rate loan at 2.86% after making a 10% down payment. According to
the mortgage calculator from Smart Asset, your monthly mortgage payment
(including principal and interest payments, and estimated home insurance, taxes
in your area, and other fees) would be approximately $1,899.
That same home could cost $371,945 by the end of 2022, and
the mortgage rate could be 3.7% (based on the industry forecasts mentioned
above). Your monthly mortgage payment, after putting down 10%, would increase
to $2,166.
The difference in your monthly mortgage payment would be
$267. That’s $3,204 more per year and $96,120 over the life of the loan.
If you consider that purchasing now will also let you take
advantage of the equity you’ll build up over the next calendar year, which is
approximately $22,000 for a house with a similar value, then the total net
worth increase you could gain from buying this year is over $118,000.
Bottom Line
When asking if you should buy a home, you probably think of
the non-financial benefits of owning a home as a driving motivator. When asking
when to buy, the financial benefits make it clear that doing so now is much
more advantageous than waiting until next year.
Source: Real Estate with Keeping Current Matters
