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Buyer’s Purchasing Power as Interest Rates and Home Prices Increase

If you’re a homeowner who’s decided your current house no longer fits your needs, or a renter with a strong desire to become a homeowner, you may be hoping that waiting until next year could mean better market conditions to purchase a home.

To determine whether you should buy now or wait another year, you can ask yourself two simple questions:

Where will home prices be a year from now?
Where will mortgage rates be a year from now?

Let’s shed some light on the answers to both of these questions.

Where Will Home Prices Be a Year from Now?

Three major housing industry entities are projecting ongoing home price appreciation in 2022. Here are their forecasts:

According to the National Association of Realtors (NAR), the median price of a home today is $353,900. Using an average of the three price projections above (6.5%), a home that sold for $353,900 today would be valued at $376,904 at the end of next year. As a prospective buyer, you would therefore pay an additional $23,004 by waiting.

Where Will Mortgage Rates Be a Year from Now?

Today, Freddie Mac announced their 30-year fixed mortgage rate was at 3.1%. However, most experts believe mortgage rates will rise as the economy recovers. Here are the forecasts for the fourth quarter of 2022 by the three major entities mentioned above:

That averages out to 3.7% if you include all three forecasts. Any increase in mortgage rates will increase your costs.

What Does It Mean for You if Home Values and Mortgage Rates Increase?

If both variables increase, you’ll pay a lot more in mortgage payments each month.

Let’s assume you purchase a $750,000 home today with a 30-year fixed-rate loan at 3.00% after making a 10% down payment. According to mortgagecalculator.net, your monthly mortgage payment would be approximately $3,162 (this does not include insurance, taxes, and other fees because those vary by location).

That same home one year from now could cost $770,000, and the mortgage rate could be 3.75%. Your monthly mortgage payment after putting down 10%, would be approximately $3,566.

The difference in your monthly mortgage payment would be $404. That’s $4,848 more per year and $145,440 over the life of the loan.

When asking if you should buy a home, you may think of the non-financial benefits of homeownership. When asking when to buy, the financial benefits could be much more advantageous than waiting until next year.

Schedule a buyer consultation with our team to discuss your options.