Why waiting to buy a house in a hot market can cost you

As long as you haven’t been hiding under a rock for the past three years, you’ve probably heard that Seattle is one of (if not the) hottest markets in America. While this is great if you already own a home in Seattle, it makes things very challenging for prospective homebuyers.

The housing market in Seattle: At-a-glance

  • We’re continuing to see home prices climb every year at a record pace.
  • Seattle is expected to continue this trend as we’re seeing droves of people moving to the area. Economists have predicted between 700 to 1,000 per week are moving to Seattle.
  • Economic forecasts indicate that we’ll see at least an 8 percent increase in home prices over the next 12 months.
  • The National Association of Realtors projects that 30-year fixed rate mortgages will gradually climb to 5.0 percent by the end of 2018.

All this leads to the question we hear most often.  Should I purchase a home now, or should I wait to buy?  There are many ways to answer that question emotionally or situationally, but let’s just focus on the numbers today.

You may see this “wait to buy” question play out in one of four different ways:

  1. Let’s assume someone chooses to purchase a home today for $700,000. They put 20 percent down and get a 30-year fixed rate at 4.125 percent. That equates to a Principal & Interest payment of $2,714 per month.

 

  1. Let’s compare that to someone choosing to wait one year to buy. Assuming that the same house increases in cost by 8 percent, you’re now looking at a purchase price of $756,000 for the same house. Let’s follow The National Association of Realtors’ rate prediction and use a 4.9 percent rate. Now the Principal & Interest payment balloons up to $3,209. Waiting just 12 months to buy a home increased the monthly housing expense by $495 per month!

 

  1. Let’s look at another scenario using the same $700,000 purchase price. Someone chooses to purchase a home today for $700,000. They put 20 percent down and get a 30-year fixed rate at 4.125 percent. That equates to a Principal & Interest payment of $2,714 per month. Now let’s assume that home prices go down by 3 percent. (I can feel the snarky grins. I too know this is highly unlikely any time soon, but please play along.) The $700,000 home is now down to $679,000, but rates have still gone up to 4.9 percent. The Principal & Interest payment is at $2,882. This is still an increase in monthly payment by $168 per month!

 

  1. Let’s look at one last scenario with our $700,000 home. Someone chooses to purchase a home today for $700,000. They put 20 percent down and get a 30-year fixed rate at 4.125 percent. That equates to a Principal & Interest payment of $2,714 per month. Now let’s assume that prices continue to rise. (I hope we’re all in agreement that this is the most likely case.) But we all get lucky, and interest rates stay exactly where they are today at 4.125 percent. The Principal & Interest payment is at $2,931. This is still an increase in monthly payment by $217 per month!

The numbers tell the story. Waiting to buy a home in this market will cost you money. You may not be surprised to hear that 14 percent of buyers are young unmarried couples pooling together to save on the rising cost of mortgage. It’s an incredibly challenging market to buy in right now — no doubt about it.

We want these figures to encourage you to keep going.

Buying now is tough, but the economic indicators show that it will continue to get tougher and more expensive each and every year. Make the effort now to find the home of your dreams and know that we are here to help.