“I’m going to wait for mortgage rates to drop before buying a home…”
It’s a thought I’ve heard many times lately, and it’s understandable. With mortgage rates climbing higher, the idea of waiting until they go down and securing a better deal can seem like the smart move. But is it really the best choice financially? Let’s take a closer look at the numbers and see why waiting might actually cost you more in the long run.
The Temptation to Wait for Lower Mortgage Rates
Let’s start with a simple scenario. Imagine that in 18 months, mortgage rates drop to 5.5%. That’s a plausible estimate based on historical trends, though still on the conservative side. For a home priced at $600,000 with a 10% down payment, you could save approximately $9,000 in interest payments over the first few years compared to today’s 7% mortgage rate. That’s a solid saving, right?
But here’s where things get interesting.
The Bigger Picture: Home Prices Are Likely to Rise
During the same 18-month period, leading analysts and organizations like CoreLogic, Zillow, and Black Knight project that home prices will increase by 6-7% annually. In Texas, where demand is exceptionally high, home prices could rise even more—potentially in the range of 7-11%.
If you wait and home prices go up by 6-7%, that $600,000 house could be worth around $660,000 in just a year and a half. Sure, your mortgage payment might be a little lower at 5.5%, but is saving a few hundred dollars a month worth missing out on $60,000 in home equity growth?
Let’s break this down even further.
The Hidden Costs of Waiting
By buying now, you’d start building equity right away. After 18 months, you’d have reduced your mortgage principal by roughly $8,000. Plus, homeowners enjoy certain tax advantages that renters miss out on, which adds more value to the equation.
When you consider the potential $60,000 in equity appreciation, along with the $8,000 in principal reduction, waiting for a lower mortgage rate just doesn’t add up. The savings in interest don’t come close to the wealth you’d be building by purchasing a home now.
Is a Housing Market Decline Coming?
Many people worry that home prices will drop eventually. But the reality is that current data and long-term trends don’t support this idea. In fact, there’s a significant shortage of housing in the U.S.
From 1950 to 2010, we averaged 22 million new homes being built each decade. But from 2011 to 2020, only 6 million new homes were constructed—a 72% decrease. This drastic decline in new home construction has created a massive gap between supply and demand. The need for housing is only growing, and with construction costs still high, it’s unlikely that we’ll see a major reduction in home prices anytime soon.
Additionally, while there’s been an increase in apartment building, most people still prefer homeownership over renting. This means that apartment construction isn’t a viable solution for the large number of potential homebuyers.
Real Estate: A Proven Long-Term Investment
If you’re still skeptical about buying now, consider this: over the last 80 years, home prices have consistently risen, even during periods of economic downturns. In fact, out of the last 80 years, real estate values have only declined in six of them. This shows that real estate, particularly when held long-term, is one of the most reliable investments available.
If you wait for mortgage rates to come down, you might miss out on a lot of potential wealth-building opportunities. Real estate values tend to increase over time, and the earlier you get into the market, the more you stand to gain.
Should You Wait for Lower Rates?
Of course, everyone’s situation is different, and there might be personal reasons to delay purchasing a home. But when we look at the numbers, it’s hard to make a compelling case for holding off on buying just because interest rates are higher right now.
If you’re ready to buy a home, now could be the perfect time to get started. You’ll not only start building equity immediately but also benefit from long-term price appreciation. The potential financial advantages of buying a home now far outweigh the temporary savings from waiting for rates to go down.
If you have questions or would like to discuss your options further, feel free to reach out to me via email at [email protected] or call/text me at 936-828-7898. I’m here to help!
