11/08/2018
Are you thinking about buying a home 🏡 but aren’t sure if you should wait until 2019?
Let’s talk about interest rates 📈
I am by no means an expert in terms of lending, however, I have many smart peers in lending who are and they’ve given me some great insights to share recently.
We have officially moved into the 5% range for interest rates. My clients who have at least a 760+ credit score and above are sitting at about 5.125% right now, give or take (without buying the rate down).
At some point in 2019, the projection is that we will be around a 6.25% interest rate. So the big question is: does it make more financial sense for you to wait until 2019 to buy and hope that housing prices drop to compensate? I’m hearing a lot of people question if we are about to see another bubble burst and if housing prices are are going to drop. If they do, that 6.25% interest rate isn’t so bad, right?
Well, let’s look at the math. Let’s say you’re thinking about purchasing a home for $300,000. At 20% down on a 30 year conventional loan, the difference between a monthly payment at 5.125% (around $1650/month depending on principal balance, taxes, interest and insurance) and 6.25% (around $1800/month depending on principal balance, taxes, interest and insurance) is about $150 per month. Not a big difference all things considered.
But, if you take that $150 difference in a payment and you multiply it by 360 months, the length of the loan, that is a difference of $54,000 paid on the same house! Housing prices would need to drop about 20% in order for you to break even. The likelihood that we are going to have housing prices drop like they did in the early 2000s is unlikely. There are far too many restrictions for lenders and protections for consumers in place.
The economy is strong. I do not believe you will be able to get a $300,000 house for $245,0000 between now and next year. However, that does not mean you can’t get a great deal on a home. On my last two transactions, I have negotiated $10,000 and $25,000 off list price for my two buyers. Negotiations are possible, in fact, they are very common right now, but not at the amount you would need to make up the difference in price between interest rates. (Not consistently at least).
For buyers, this truly is an excellent time to buy for many reasons. Here’s are a few:
1. Inventory is up. For both new builds and resale homes
2. Rates are still low all things considered, but they only going to get higher
3. The ability to negotiate is common
4. Less multiple offers and less bidding wars (depending on where you are)
5. More opportunity to negotiate repairs and credits towards closing costs
6. More properties are selling under asking price than over asking price (just saw this at my monthly Brokerage meeting!)
7. It’s a double whammy right now for you as a buyer - not only is it seasonal slowing, but the market is shifting, so the ability to get a great house for a great price is very possible. People always joke with me that no one buys during the holidays, but for the last two years the bulk of my sales have been in November/December.
If you have the choice between buying now and waiting, consider making the move. As a buyer this is finally your season to shine. Message me or call/text anytime 🙋🏼♀️ if you’re ready to look at your options! I’d be happy to chat with you over coffee ☕️
Lexi Crump
Realty ONE Group
DRE #02030841
916-612-1011
