The Cost of Waiting – Why Now Is the Time to Buy | Guest Post
Denver and the State of Colorado have always been an extremely popular place to live! Now, more than ever, there is an increase in people moving to our beautiful state, which means they need places to live. And while it's always rare for the market to have abundant inventory, in a market like this, it could be months — or years — until we see balance restored.
With higher interest rates on the horizon, higher home prices and the scarcest inventory anyone in the real estate business has ever seen, Denver buyers find themselves in an atypical situation.
While homebuyers may be tempted to pull the covers over their heads until more inventory appears, every day waiting is costing them money. How? With interest rates and home prices headed up, and supply remaining tight as the pent-up pandemic demand of millennials in their home-buying prime is finally released, there isn’t going to be the ‘let-up’ in demand so many people think is headed their way.
The True Cost of Waiting
How much is waiting costing you?! Let’s take look at an example from the Denver market:
You're purchasing a home that costs just under $650,000, which is near the average home price in the area. After you put 10 percent down and pay closing fees, the total cost to close would be about $70,000.
This means with a 30-year conventional loan of $585,000 at an interest rate of 3 percent, your monthly mortgage payment would be just under $3,000.
Now, there are two reasons waiting to make the purchase will cost you:
- Interest rates: After seeing historic lows, interest rates are expected to start rising again.
- Home appreciation: Real estate values go up over time, especially in a desirable city like Denver.
We aren’t making projections based on the current market, which has seen wild and unsustainable price increases in a short time. So for the following we’ve based our numbers on conservative home appreciation increases, as well as anticipated interest rate increases.
- Waiting six months would cost an extra $104 monthly / $1,247 annually.
- Waiting one year would cost an extra $364 monthly / $4,368 annually.
- Waiting two years would cost an extra $578 monthly / $6,942 annually.
- Waiting three years would cost an extra $916 monthly / $10,993 annually.
Additionally, during those months or years in which you delayed the home purchase, you're also missing out paying down your mortgage while paying rent, which is your landlords’ mortgage! All told, waiting a couple of years could cost you as much as $100,000. Purchasing today doesn't seem like such a bad idea when a figure such as that is at stake.
Renters Always Pay the Highest Price
Whether it's your salary or stock portfolio, inflation has a nasty habit of devouring money. Real estate is the best protection against an inflationary cycle, and there's one group who always misses out: Renters.
Today about 36 percent of Americans rent their homes — that's the highest level since at least 1965. While some people rent out of necessity, many others believe they're getting a great deal when, in reality, there are much better opportunities all around them. Many also believe they can save money for a home purchase down the line, but they're unlikely to save money fast enough to keep up with rising prices and inflation. Maybe you can rent for less than you can buy today, but what about tomorrow, or next year?
So what’s a renter to do?
Taking the first step is as simple as speaking with a mortgage advisor. A good advisor will never tell you to dump your retirement savings and throw it all into the real estate market. You need to have a realistic conversation about your options because the market is intense, and the game is ever-shifting. You need a competent guide.
Your advisor will help you think through the important questions: What's today's interest rate? When is it likely to go up? How much can I afford? Do I have what I need to buy a home? Together, you can discuss these questions and calculate the cost of waiting.
Worried about up-front costs? Almost everyone is! While you hear stories of people purchasing homes in cash, it’s a very small percentage of our market. There are still loans with down payment assistance, VA loans and some with as little as 5 percent down that are being closed. So don’t let clickbait headlines steer you away from purchasing.
Do you worry about losing money in real estate? Who doesn’t? But here’s the thing. You can lose money in stocks, crypto and other investments. But you can always live in your home. Those in who weathered the housing storm in 2008 now carry twice as much value in their homes today! Denver knows how to bounce back.
Bottom Line: Now Is the Time to Buy
The sooner you get in the more time you have for appreciation, principal reduction and less time paying rental income to your landlord….instead, apply those same monies to pay down your own mortgage.
Let's learn from the past: Anyone who purchased a home between 2006-2008, just before the market crashed, and decided to hang onto it for several years afterward, would be in good shape. Those who sold their homes during the downturn are probably kicking themselves.
Interest rates are steadily going up and prices will keep going up, too. Your desired home is only going to cost you more tomorrow. So if you are renting, you are paying for your landlord's retirement, not your own. Time is your friend and biggest ally…well besides your trusty mortgage advisor.
The views, opinions and positions expressed within this guest post are those of the author alone and do not necessarily represent those of the Denver Metro Association of Realtors®. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.
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