The Math says don’t wait to purchase!
Rates have come down for 5 straight weeks now and are down almost 1%!
This is excellent news for all involved in the market. And this particularly impacts the affordability calculus for purchasers and move-up buyers that are tethered to their current lower-rate mortgages.
But there is a calculus that many are overlooking as they wait “for rates to come down further and the market to correct”. This is a false calculus here in the Northern Virginia region. Let me explain, and put some numbers to it. In the last 12 months prices in the NOVA region have risen over 4%, including 1.4% in the months of October and November alone! I have written profusely with supported data and analysis about how the market in NOVA is not in for a retreat, though that is certainly the case in other parts of the country (check out my blogs on my website). Let’s take an example of a $600,000 home today at 7%. With 10% down, and financing 540K you are looking at a P & I payment of $3,593. Now let’s say you wait a year and rates in fact do come down to 6%, but the property has gone up again in value by 4% to 624K. Now the payment would be $3,367, about $225 less per month. That’s good. However, you now owe $21,600 more on your mortgage! And if that scenario plays out you could always just refinance in a year at a cost of less than 4K.
The waiting strategy is an effective one only in a market of declining rates and home prices.
Check out the staggering results of this survey conducted by Zillow in June and July: 78%, that’s right 78% of homeowners are currently not happy with their homes. So why would 3 in 4 owners stay in a situation in which their housing needs are not being met? 2 things. The golden handcuffs of their current lower rate mortgages, and faulty analysis about the future of the market and the attendant erroneous math that accompanies it. These decisions are too important and broadly impactful not to get right. The end of the year is an excellent time to take stock of your housing and financial situation. If you’d like my assistance in doing so, please reach out.
Merry Christmas and Happy Holidays!
It’s a good life.