2021 has been rough on home buyers. The year started with homes going under contract in a matter of hours after receiving dozens of offers. The increase in buyer demand drove the prices way up – over 2020’s home sales prices. Buyers were waiving contingencies and putting down cash well over the appraised value so that they could get into a house of their own. Many home buyers were left out in the cold after making offers on upwards of ten homes, often doing so site-unseen. They became frustrated and wondered if they should wait for conditions to change… surely this crazy market won’t last too much longer, right?
If you’re one of the thousands who gave up on your goal of homeownership with the hope of trying again next year, you may be in for a rude awakening. Let’s discuss why waiting is not the answer for frustrated home buyers.
Homes Values Will Continue to Increase
Even though values are not supposed to increase at the unbelievable rate they did in 2021, when you have an increase in demand from buyers entering the market at the rate we have seen this year, you can expect to see the home values increase as well. The experts are predicting that this increase, although it won’t be as fast or drastic, will continue to trend upward through 2022. Therefore, homes will be more expensive at this time next year. If your budget allows for you to purchase a $400,000 home today, and that home will be more expensive at this time next year, then you will be facing one of two options if you wait. You must either increase your budget or settle for a less expensive home, and that less expensive home may not meet all of your needs.
Interest Rates Are Going Up
Interest rates have been at record lows for most of the last two years, which has been a large reason for the increased demand for homes. Looking ahead to 2022, mortgage rates are expected to increase, with the possibility of reaching 3.7% by the end of next year. Let’s put it this way, today’s interest rates are right around 2.75%, so that means if you put 20% down on a $356,700 home, you would end up paying approximately $131,309 in interest over the 30-year life of the loan. Even with the record low-interest rate, that is a lot of money. Now, if you bought that same home with a 3.7% interest rate, you’d end up paying $187,487 over the life of the loan. That’s over $55,000 more! For those who prefer to think of it from a short-term perspective, that translates into $156 more on your monthly payment. For some, that size of increase to the budget might really sting.
Not only does the higher interest rate cause your payment to go up, but it also changes the conditions required in order to qualify for a loan. With a higher monthly mortgage payment, you will need to have a lower debt-to-income ratio and a higher annual salary. So if you’re already at the top of your budget when you consider the numbers today, you may be out of luck if you wait until next year to buy.
It’s Not All Bad News
The good news is, inventory has been increasing in recent months and the explosion in home values has slowed down. So, hopefully, we won’t see the chaos that ensued at the start of 2021 where lines to get into open houses wrapped around the block (seriously), and you won’t have to waive all buyer protections to get an offer accepted.
Waiting until next year to purchase a home is going to cost you more money than it will today. Additionally, buying a home during the holiday season is easier because there is less competition. Of course, you can wait until after the holidays, and we expect many buyers will make that decision. Or you can take advantage of less competition in the market, giving you a better chance at the chosen offer on the perfect home.