The Cost of Waiting4/4/2017
Those who know me know that I don't generally encourage purchasing a home before you're financially ready.
That still holds true.
Recently, some clients looking for a home decided to wait a year until they had $10,000 for a bigger down payment. Is this really a good decision in today’s market?
Not so much.
In the KC Metro area the average sales price for an existing home a year ago was $170,000. On average, that home has appreciated 10% over the last year, meaing that home now costs $187,000, a $17,000 increase.
A year ago, a 30-year fixed-rate mortgage was 3.79% nationally. Now, that rate is 4.19%, still very low, but moving up. So the payment difference (assuming 10% down) based on interest alone would be over $40/month or another $500/year.
So to purchase the same home you'd lose $7,500 in buying power in spite of the extra cash.
In Johnson County, it's even more pronounced: the average home costs $49,000 more this year, and your interest payment difference (assuming 10% down) would be $67, or about $800/yr. That means in that year you were saving, you'd have lost nearly $40,000.
There's very little inventory right now, which will probably continue to push prices up. The Feds meet this month probably to raise the prime lending rate, so next year could very well repeat or even outdo this year.
Obviously each person’s situation is different. There are ways to deal with this, and a good Realtor can help you find the best strategy. If you'd like help getting your next home (or selling your present home), I'd be honored to help.