Home prices had a dramatic rise over the past couple years. In February 2022, the average home price across the nation increased by 16.1% compared to last February. In California, home prices are up 13.6% compared to last year, but they’re up 24.4% in Orange County. And all signs point that prices will continue to rise consistently—across the U.S. and in southern California.
Rising home prices make many potential buyers think they're better off waiting until prices fall down.
While this is a logical thought, waiting to buy a home is much more expensive than you think.
Well, for one, nobody knows when prices will start declining, if they do at all. Another reason is that you only get one chance to buy your dream home, and may never find another house you love as much again.
But the real reason? The financial reason?
Even though we’re starting to see mortgage rates climb, they’re still lower than they’ve been in decades.
Still, most buyers don’t realize just how much money they’re saving (or losing) based on their mortgage rate. Tiny changes in your 30-year fixed mortgage rate can create colossal differences to your bank account.
Let’s put this into context, so you can understand it with crystal clear clarity:
For the past couple years, mortgage rates floated between 2-4%.
Let’s assume that interest rates will continue to rise over the next couple years, and float between 6-9%.
That’s over a 300% difference in the price you pay!
Let’s do some quick math:
If you got a 30-year mortgage worth $500,000 and secured a 3% interest rate, you’d end up paying $758,887.20 by the end of your mortgage.
Keeping the numbers simple, let’s assume those same numbers but with a 6% interest rate instead:
You’d pay $1,079,190 instead — or $320,302.80 more than if you secured the mortgage at a 3% interest rate!
While 6% is high compared to recent rates, they’ve gone as high as 18.45% in October 1981. In the early 2000s, they floated between 6-8%, so it’s not crazy to assume they could go that high in the future.
Here’s why we bring it up:
Despite rising prices of homes, homes are still more affordable today than they’ve been in history. While mortgage rates aren’t as low as they were a couple of months ago, they’re still a fraction compared to historical rates.
(And from a seller’s perspective, lower rates expand your pool of potential buyers too.)
Just something to think about.
Everyone talks about how the price of homes keeps rising. But it’s important to put this into context:
Homes are still ultra affordable because of historically low mortgage rates, which can change like the direction of wind.
If you want to take advantage of low rates and lock in your dream house for $300k less than you would if interest rates doubled… give us a call at 949-229-2208 for a free consultation. Or if you know anyone who has been thinking about buying a new home, but isn't because prices keep going up, send them our way. We’ll help them decide if waiting’s worth the cost or not.
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