Waiting to Buy in Hopes Prices Decrease
With inflation increasing and mortgage rates rising as well some people are sure that there will be some sort of real estate market correction to make homes more affordable again. One of the theories from some is that home prices will take a slight decrease at some point. This has led some potential buyers to believe they should wait it out a couple of years and purchase a home when they hear prices are expected to take a slight downturn.
While this theory sounds understandable, there are many bigger picture factors to consider with the current state of the real estate market as a whole. Home prices are expected to grow in most locations around the country, at a much slower rate than what we have seen, but they are still expected to rise.
Additionally, mortgage rates are expected to continue to rise no matter what home values do in the next few years. Even if home prices took a slight decrease for some reason (no variable of the housing market is 100% predictable, look how low mortgage rates got in 2020.) mortgage prices will continue to rise. A higher mortgage rate is going to have a more significant impact on the overall cost of living in a home than the fair market value.
Say you are interested in purchasing a home with a price tag of $625,000 right while mortgage interest rates are in the 5% range. Let’s say you are able to qualify for a mortgage with a 5,5% percent rate after making a 10% down payment (which is less than the traditional 20% down. Your monthly mortgage payment would become $4,066 a month.
If you were to wait to see if prices take a slight decrease and let’s say that they do and the house is now worth $581,250, but interest rates have continued to increase and are now at 7%, your mortgage payment would be $4,250 on the same house. Even though you are paying a lower price, you are paying much higher interest, which in the long run, means paying more money for the home.
Though it seems discouraging that home values have risen and mortgage rates are climbing, even if prices went down, (which is highly unlikely in the next few years given other factors in the housing market) it will still be more expensive to purchase a home and make mortgage payments.
If you are hoping to purchase a home, but are unsure if you could afford a home that you would want to move into, it is a good idea to seek the advice of a local real estate agent. They will have the most up-to-date information on what is going on in the local market and help you to better assess the affordability of purchasing a home right now.
One thing you don’t want to do is assume you should just wait it out, it could end up costing you thousands of extra dollars.
For more information on purchasing a home in West Ocean City and surrounding areas, please contact us at any time.