Frequently as I speak with potential buyers, I find that they are having a debate with themselves about whether to act now, or delay their acquisition of a home for a year or some point in the future when they feel the market conditions might be a little more favorable. A little more favorable for whom? Sellers? Buyers?
Current interest rates for a 30 year fixed rate loan are sitting at about 4.5% with daily fluctuations. The projection for 2014 is that by this time next year the rates will have increased to 5.5%. Those of you who already own homes may be thinking-yes, but I have read that home prices are also projected to rise about 4.5% as well. So I would like my home to sell for a little more money. I understand completely as long as you aren't interested in buying another home. Why? Because if your home appreciates 4.5% all the other homes on the market will be appreciating 4.5% also. Let's do a little math:
If you purchase a home for $150,000 and put 5% down at today's rate of 4.5% your principal and interest payment will be $722.03. If you wait for next year to roll around and the interest rate is 5.5% and housing prices have increased, that same $150,000 home will be on the market for $156,750. The house payment will be $845.51 a $123.48 difference. That's not so terrible you think. Let's multiply that difference out over 30 years-the difference you will make in principal and interest payments will be $44,528. Ouch-now it's really adding up, isn't it? But if you have a house to sell-let's say it is worth $100,000 right now-your house will appreciate to $104500 yet you will only net $2250 of that increase because you are paying more for your next house.
If you are a renter and paying $650 in rent, you will be paying an additional $7800 to your landlord which could be going into a mortgage. Keep in mind, that overall home ownership is 35% cheaper than renting.
I don't know about you, but I don't see an upside to waiting if you have the ability to buy now.
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