Plain and simple: your dream house ( or any house for that matter) will never be as affordable as it is right now; and it’s all slowly beginning to change.
Though rates are low and prices remain lower than they should be, buying a house today is not easy. Inventories are so low that there is little selection and no time for hesitation. When your new home comes on the market, you must move quickly to beat out all the other buyers for whom it may be perfect. Many new listings today get multiple offers in the first couple of weeks! Still, you must redouble your efforts to buy that house now for two very good reasons:
First, interest rates have begun to creep up. Today’s rates are higher than they were three months ago. Everybody knows higher rates are in our future. The only question is: how high will they go? Many believe we’ll plateau and settle in somewhere in the 6% range, but what does that mean to you?
Well, if you are buying a $225,000 house with 10% down and decent credit, you’ll probably get your $202,500 30 year fixed rate mortgage for about 3.75% today. The monthly payment would be about $938. If that was the maximum payment you’d accept and rates were at 6%, the most you could afford (with your same $22,500 down payment) would be $179,000. That’s a $46,000 drop in the price of the house you could afford simply because rates went up.
Take a moment to picture those two houses. If the $225,000 house has 4 bedrooms, the $179,000 house probably has 3. If the $225,000 house is 1850 square feet, the $179,000 house probably has 1600. It’s just less; a lot less.
Also, prices are climbing very rapidly. Yes we were in a bit of a price hole for a few years. Actually, it was more like the Mariana Trench. Prices fell as much as 60% from their highs in 2006. We bottomed out in most markets sometime last year. Now, the pendulum is swinging again: prices are rising. In some areas they are rising rapidly. I read earlier this week that prices in California rose about 20% in the last year. Let’s consider that for a moment.
Again, think about that $225,000 house you were wanting to buy, but this time, you should have bought it last year. Know what it costs today? $281,250. $56,000+ more. If $225,000 is your target price, you’ll be looking at homes that cost $180,000 last year!
These two factors should quickly impel your home purchase project to the front burner. This is not the time to hem and haw and looky – looky – looky. You must get clear about what you want and what you can afford, then stalk your new home like a tiger in the jungle. When you see it, pounce. In another year the opportunity may be gone.