Potential homebuyers who have been patiently waiting and saving for their new home have been hit with a startling reality: the housing market is so hot that according to Redfin’s latest data, over half of all homes are selling for over asking price right now. Additionally, the median sale price has jumped about 25% since the same time last year.
Not surprisingly, plenty of would-be homebuyers are now asking themselves: should I buy a house right now or wait until 2022?
There’s plenty of reasons you may want to wait, but you might be surprised to discover that it is a great time to buy for many people, despite the high prices.
Mortgage Rates are Historically Low
There are plenty of would-be homeowners right now hoping to time the market and wait for home prices to fall. The trouble is, even experts have trouble correctly predicting the trajectory of the housing market: there were plenty of people predicting that the housing market would slow down and cool off in 2021 (and we can see how that turned out).
The downside to waiting for prices to fall is that you risk mortgage rates rising, and one thing we know for sure right now is that mortgage rates are at a record low. Consider this scenario:
- You buy a home today for $450,000 at 2.875%, with 20% down and a 30 year mortgage – your monthly payments will be $1,493 before taxes, insurance, etc. and over the lifetime of the loan, you’ll end up paying (loan+interest) $537,830.
- Let’s assume this home can be purchased for $410,000 due to a cooler market in 2022. If the mortgage rate goes up by a single percentage point over the next year (a rate of 3.875%), and with all other factors staying the same, your monthly payments will be $1,542 before taxes/insurance, and your total amount owed would be $555,380.
In other words – by paying $40,000 more while locking in a lower mortgage rate, in this scenario, you actually save money over the life of the loan by buying today. Again: it’s impossible to predict exactly what will happen, but you won’t necessarily save money by waiting for the housing market to cool. In fact, you might still pay more.
Rent has Increased to Match the Housing Market
Yes, home prices have increased, and you can try and wait it out. However, rent prices have been going up as well. At the end of the day, you’re still paying someone’s mortgage – it’s just not yours.
According to data from realtor.com, rental prices in 44 out of 50 of the country’s largest metro areas have surpassed their pre-pandemic levels. NPR reports the housing shortage in the U.S. is at a crisis point. We’re talking about a deficit of 5.5 million homes. Oct 2021 Apartmentguide.com reports San Diego rental market is up by 3.99% compared to last month, and are up by 19.46% compared to last year. The average one bedroom rent is $3093.
An added benefit of having a mortgage is that your mortgage payment remains the same every month. Once your lease ends and you go to re-sign, your landlord can ask you for $200 extra a month if they want, but the bank can’t ask you to pay more for the same reason. Your mortgage serves as a hedge against the rising cost of housing.
California Rising Home Prices
According to Redfin, in October 2021, San Diego home prices were up 18.5% compared to last year, selling for a median price of $800K. Since spring 2020, median prices were up 32% in San Mateo, 31% in Santa Clara and 20% in San Francisco, according to the data.
And now the market is slowing towards its big mid-winter-holiday slowdown. December and January are usually very slow months. Bay Area house prices were slightly down by 1.2% from the previous month. The Southern California housing market is hot, but cooling. Home prices rose nearly 13% in September according to LA Times.
The average rate for a 30-year mortgage climbed to 3.09% this week, the highest level since April, when it peaked at 3.18%, according to Freddie Mac. A year ago, the rate averaged 2.8%.
The average rate on the popular 30-year fixed loan will rise to 4% in 2022, according to the Mortgage Bankers Association’s forecast.
It is hard to gauge when is the “right time to buy or right time to sell”. Nobody has a crystal ball to predict the market. However, knowledge in market stats and trends could be useful when looking to buy or sell.
Always consult with a local Realtor (hyperlink to real estate/buyers/contact me) to get the best sense of current market update.
