A constant hot topic with buyers: is now the best time to make a move or is it better to wait?
I get asked this question so often that I wanted to take a moment to share a few scenarios around buying now and buying later. I’m going to review what these numbers might actually look like as well as the potential pros and cons of buying now, and what are we dealing with today, as of October 2023.
An important note: the market as a whole and its variables, like sales price averages, rates, et cetera are constantly changing. Your particular scenario may differ, these numbers are for the sole purpose of this example.
CURRENT MARKET + RATE
As of September, the median sales price in our area was $425,000 (Area: Northeast Florida - Jacksonville and surrounding counties). Let’s say taxes on this average property are $4,500/year, homeowners insurance is $1,500/year, and the interest rate is 7%. This would mean the current monthly mortgage payment is $3,532 for a 30-year mortgage.
Many buyers are waiting for interest rates to drop before pulling the trigger. However, when rates drop, many estimate that millions will jump back into the buying game. This means we will likely see a very “hot” market with multiple offers, homes selling for much higher than asking price, and no seller credits or concessions. It will feel more similar to the market we saw in 2020-2022. In this type of market, its common for buyers to pay for some of the seller’s costs, face quick-to-no inspection times, must buy the home as is, pay over the appraised value, et cetera.
Facing all of those crazy terms for a lower rate could actually be much more costly in the end.
NEW MARKET + LOWER RATE
As mentioned above, with multiple offers, it is likely buyers will purchase the home for over asking. In this scenario, that $425,000 quickly becomes a sales price of $475,000. Assuming the same taxes and insurance, but with a rate of 5.8% your monthly mortgage payment is $3,115 for a 30-year mortgage.
Yes, even with a higher price, and a lower rate, you do see a slightly lower payment. However, what if you have to contribute to the seller’s costs to buy the home (let’s say $5,000), may forego an inspection, and could not ask for any necessary, and often pricey, repairs. Is the $400/month savings worth it after having to also potentially dish out $7,500 - $10,000 at or immediately after closing?
CURRENT MARKET + RATE BUY DOWN
Instead, what if you bought now at a sales price of $425,000, received a market rate of 7% and then were able to receive a seller contribution for a 2/1 Rate Buy Down. This means in the first year, you are able to lock in a rate of 5%, which saves you $850/month (over $10,000+ for the year)! Then, in year two of your loan, the rate becomes 6%, which saves you $610/month ($7,000+ for the year) compared to the original 7% market rate. Finally, years 3 - 30 return to the market rate at the time of purchasing, so the 7% with a payment of $3,532.
CURRENT MARKET + RATE BUY DOWN + FUTURE REFINANCE
Now, what if you pursued the current market with 2/1 Rate Buy Down scenario, but then also explored a home loan refinance? In this scenario, say you protected a portion of those monthly savings in the first two years of your mortgage payments and put that toward a REFI (refinance) once rates are 1-2% lower than when the home was originally purchased. Now, because the sellers funded your 2/1 Rate Buy Down, and you just saved thousands of dollars per year, you’re not out any personal funds. Instead, you just saved thousands the first two years of your loan, and now with the market picking back up, you’re gaining equity and your home is appreciating yearly!
Every situation is different, and understanding the current market and financing options can feel overwhelming. If this piqued your interest and you want to learn more, reach out to us today! We’re happy to help you run potential scenarios or connect your with our preferred lender to understand your potential buying power.
