One of the big questions that continues to come up is, “Should I buy a new house now or wait?” This question comes from those renting currently and thinking of trying to get into their first home, as well as current homeowners wondering if now is the time to put their house on the market and go find their dream home.
Buy Now or Wait: A Tale of Two Families
The Smith Family is thinking of buying, but has decided to wait until they have saved up more money. They plan to buy in the summer of 2016. The Johnson’s on the other hand, feel that the combination of rising home prices and rising interest rates make this the perfect opportunity to buy a new home this summer. Here is a simple, side-by-side comparison:
Obviously there are more factors that go into this decision, but the above comparison brings to light a couple of key things:
- That same house that is worth $400,000 today will cost more to buy a year from now, based on a conservative 5% appreciation rate.
- Interest rates have already increased from the upper 3’s to the lower 4’s in most cases. The Fed intends to increase (short term) rates later this year, and all signs are pointing to higher fixed rates a year from now.
- Often people forget that if they wait to buy, and work hard to save up more money, the amount needed to close also increased while they waited.
One of the biggest benefits the Johnson’s come away with, in the example above, is that a year after buying their new home, they will enjoy a house now worth $420,000! That is a $20,000 increase to their net worth, while enjoying the lower payment that will never go up as long as they have the mortgage.
When clients first ask me, “Should I buy now or wait?” my standard answer is “It depends.” People should never buy a house solely because rates are low or because of the potential rise in prices. Once I have had the chance to look over their current financial situation, and discuss their short and long-term goals, we can together determine if buying now makes good financial sense. If so, then I can confidently say, “YES, let’s buy now before interest rates rise and that same house costs you more a year from now!”