The Cost of Waiting
If you are thinking about buying a home, is there a cost of waiting? What about renting versus owning? Finally, have you heard we are in a dual market? Well, we decided to run the numbers and the answers may surprise you. Interest rates are at historic lows, but trending upwards and home appreciation is up year after year. Buying a home now could be the best time for you. Let’s take a look at the numbers.
People have different reasons for wanting to wait to buy. Maybe they want to save up for a larger down payment, or maybe they want interest rates to go down, or perhaps they are just not ready to move. Whatever the reason there could be a real cost of waiting to buy. It is big decision whether you are buying your first home or moving up to make room for a larger family.
Renting vs. Owning
This is an old debate and proponents of each side have points, but let’s take a hard look at the numbers.
The average rent in the U.S. in 2015 was $1021 and rent typically increases by 3-4% per year. Depending on where you live this number could be higher and it could also be lower.
The big argument for owning is why would you pay someone else’s mortgage? On the other hand, there is a good amount of work involved with owning your own home. Each person’s situation is unique and ultimately the decision is up to you, but let’s break down the financial side of things.
- On average over the last 3 years renters have missed out on $41,000 in equity.
- If you continue to rent at $1000/month and it doesn’t increase, over the next 5 years you will have spent $60,000. All of that money could have been gaining you equity in your home!
- The median net worth of a homeowner is about $200,000, while the median net worth of a renting household is just over $5,000.
- The interest you pay on a mortgage is tax-deductible.
- Home maintenance costs approximately 1-2% of the homes value per year.
- However, homes typically appreciate at about 4% per year, gaining you equity even faster.
We ran a breakdown of a rent vs. own analysis here. You can also check out this rent vs. own calculator from our friends at MGIC to do your own math.
Conclusion: Owning is a better financial option, but you have to be ready for the responsibility of owning your own home.
The Cost of Waiting
Is there such a thing as a cost of waiting to buy a home? While no one can predict the future, it is likely we will see home prices continue to go up and interest rates to increase.
As we mentioned above homes typically appreciate at about 4% per year. This number is much higher in certain areas. It is likely we will continue to see this appreciation for the foreseeable future.
Interest rates are also trending up as well and are expected to hit above 5% by next year. While this number is still well below the historical average it will still cost you a lot more money in the long run than if you bought now.
We decided to do an example of a person looking to purchase a $250,000 home. Check it out here.
As you can see if this example person waited to buy, they could end up paying an extra $13,000 in interest in the first 5 years…ouch!
Conclusion: As I said, there is no way for us to know what the future holds, but if it stays with the trend there is a real cost of waiting… and it’s a big cost!
Take Advantage of a Dual Market
Did you know that you could sell in a seller’s market and buy in a buyer’s market? If you are looking for more room for a growing family or your income has grown and you’re looking to finally get into that dream home, now may be the right time.
Most of us have heard that the real estate market is hot right now. There are just not enough homes listed for the amount of people looking to buy. In some cases homes are getting 20+ offers on them before selling. This makes it really tough for buyers, hence it’s a seller’s market.
This seller’s market exists all across the country, but did you know it only exists for certain price ranges?
The price range of $100k-$400k is the hottest, with an average of 3.41 months of inventory since the beginning of the year. Months of Inventory(MOI) is a measure that basically states that if no more homes were listed, all of the homes currently on market would be bought within x number of months. In our case above that would mean 3.41 months and all the homes are sold.
In contrast, homes in the $500k-$800k+ have averaged 9.75 months of inventory since the beginning of the year. To put this into perspective the rule of thumb is over 6 MOI and it’s a buyer’s market. Under 6 MOI and it’s a seller’s.
So, if you currently own a home in the $100k-$400k range and are looking to move into a home in the $500k-$800k+ range you could really win big. You get to sell at the highest price possible and buy at the lowest possible. As well, you get to take advantage of the historically low interest rates! Sounds like a win-win-win to me.
Questions or Comments? Reply below!
And, as always, if you have questions about real estate, and financing your next or first home, call/text me at (314) 472-DOUG (3684)
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