With home price appreciation expected to continue at the Shore, the time to buy is when you can afford it. It may be a seller's market right now, but mortgage rates are still historically low.
As you can see in the graph of average rates over the past 30 years, mortgage rates overall have been on the downward trend for some time, but are increasing and expected to continue to do so into 2022.
Some buyers might be tempted to wait on lower interest rates – or slower home price growth – before they enter the market.
But if you as a home buyer wait for mortgage rates to drop to a certain range, you run the risk of:
- Losing out on the house you wanted
- Being priced out of listings you could’ve previously afforded
- Waiting on lower rates that might never materialize
When you wait for the right interest rate, you are gambling.
Home buying example
Here's a hypothetical: Let’s assume you’re a borrower qualified up to a total monthly payment of $2,500. If today’s interest rate was 3.25%, here’s how your home buying budget might look:
- Home price: $500,000
- Down payment: 20% ($100,000)
- Monthly principal and interest payment: $1,740
- Total monthly mortgage payment: $2,360
You are qualified and can afford the home, but you decide you’re going to wait for rates to retreat back under 3%.
Now, six months have passed and rates are still at 3.25% and the original home you wanted is no longer available. An identical property in the same neighborhood is listed, but the market kept its pace and that home is listed at $530,000.
Thanks to the higher price tag on that home, your monthly payments have risen and you’re almost maxing out your budget. Your down payment amount has risen, too.
- Home price: $530,000
- Down payment: 20% ($106,000)
- Monthly principal and interest payment: $1,845
- Total monthly mortgage payment: $2,497
And this is assuming you haven’t taken on any additional debt in the meantime. If you have an additional $1,000 balance on your credit card and can’t pay it off, you no longer qualify for the home.
Risks of waiting to buy
In terms of the price of the house, I have personally seen clients price themselves out of the market they were targeting just hoping housing prices were going to fall a bit and instead they continued to rise.
Then there is the other scenario that can happen: rates never go down and continue to rise.
If mortgage rates go high enough, this could price you out of your qualified monthly payment and the home you want to buy.
For these reasons, I advise against chasing lower rates and/or lower home prices.
It not only harms your wallet, but more importantly, your ability to qualify for the house you want.
This underscores the overarching point that now is always the right time to buy if you’re ready and can afford it.
Mortgage Rate Forecast
Industry experts forecast the average 30–year fixed rate mortgage to settle around 4% by the end of 2022.
And while predictions don’t always come true, we do know today’s rates hover near historic lows. On the chance they fall in 2022, borrowers can always refinance with their lender to secure a lower rate and monthly payment.
Put my 27 years experience to work for you and start building your own equity at the Shore. Inventory is expected to remain low, and prices not expected to decrease significantly. Make 2022 your year!
|
