when to buy:
Should I buy now or wait for a market correction?
The answer to the question of whether or not it is a good time to buy breaks down to two questions.
What will home prices do in the next year?
Where will mortgage rates go in the next year?
What will home prices do in the next year?
Three major housing industry entities project continued home price appreciation for 2022. Here are their forecasts:
Freddie Mac: 5.3%
Fannie Mae: 5.1%
Using the average of the three projections (6.27%), a home that sells for $1,000,000 today would be valued at $1,062,700 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 $62,700 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%
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 $1,000,000 home this year with a 30-year fixed-rate loan at 2.86% after making a 10% down payment. Your monthly mortgage payment (including principal and interest payments, and estimated home insurance, taxes in your area, and other fees) would be approximately $4,431.
That same home could cost $1,062,700 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 $5,584.
The difference in your monthly mortgage payment would be $1,153. That’s $13,836 more per year and $166,032 over the life of the loan.
Based on a $1,000,000 purchase price today.
Bottom Line
When asking if you should buy a home, the financial benefits make it clear that buying a home sooner rather than later makes financial since.
