Many people are sitting on the fence trying to decide if now’s the time to buy a home. Some are renters who have a strong desire to become homeowners but are unsure if buying right now makes sense. Others may be homeowners who are realizing that their current home no longer fits their changing needs.
To determine if they should buy now or wait another year, they both need to ask two simple questions:
- Do I think home values will be higher a year from now?
- Do I think mortgage rates will be higher a year from now?
Let’s shed some light on the answers to these questions.
Where will home prices be a year from now?
If you look at the last 6 months of sales data from REINZ you will see that the median house price is continuing to grow each month. This months data released shows a record high for the median sale price in Palmerston North sitting at $670,000. This increase in sale prices has QV’s house market report indicating a growth of $1000 per day on the city’s median house price, QV’s Jason Hockly stating that, at that rate, the average house price in the city would be $1m by the end of the year.
Where will mortgage rates be a year from now?
Today, standard 5 year mortgage rates are around 3.39-3.99%. However, most experts believe they’ll rise as the economy continues to recover. Any increase in the mortgage rate will also increase a purchaser’s cost.
What does it mean to you if home values and mortgage rates increase?
A buyer will pay a lot more in mortgage payments each month if both of these variables increase. Assuming a buyer purchases a $325,000 home this year with a 30-year fixed-rate loan at 3% after making a 10% deopsit their monthly principal and interest payment would be $1,233.
That same home one year from now could be $350,025, and the mortgage rate could be 3.6%. That monthly principal and interest payment, after putting down a 10% deposit, totals $1,432.
The difference in the monthly mortgage payment would be $199. That’s $2,388 more per year and $71,640 over the life of the loan.
Add to that the sale price difference expected between this year and next, and the total net worth increase a purchaser could gain by buying this year starts to really add up.
Bottom Line
When asking if they should buy a home, many potential buyers think of the nonfinancial benefits of owning a home. When asking when to buy, the financial benefits make it clear that doing so now is much more advantageous than waiting until next year.
