The Cost Clock is Ticking

The Cost Clock is Ticking

When it comes to purchasing a new home, timing is one of the most important factors. If you’re a newly married couple looking for your first home or a single retiree looking for a place to downsize, timing is inevitably going to play a role in your purchase decision. Is it the right time to make a change? Once you’ve decided that you are ready to make a change in your living arrangements, you’ve completed half the battle! The other, and oftentimes, more difficult half of the battle still awaits. Is now the right time to buy? If you’re asking yourself this question then consider these facts: home inventory is low, interest rates are rising, and demand is growing. The times are absolutely changing.

Although the market is on the mend, interest rates are still at a historic low. According to HSH Associates, the nation’s largest publisher of mortgage information, the median interest rate on 30-year fixed-rate mortgages was approximately 4% in July 2014. Taking this median interest rate, we used the mortgage calculator on Zillow.com to determine the monthly mortgage payment on a $220,000 home.  The calculated payment using a 30-year fixed-rate mortgage with a 20% down payment and estimated taxes and insurance included on a $220,000 home was $1,127 per month! Market analysts are predicting rates will rise in 2015. For fun, let’s say that mortgage rates increase by 1 percentage point by the second half of 2015. Factoring in all the same calculations and including the higher interest rate, a $220,000 home would have a monthly mortgage payment of $1,231 in 2015. The simple change in interest rate leads to a monthly difference of $104 and a yearly difference of $1,248. Think of all you could do with an additional $1,248 per year- a family vacation, trip to the spa, weekend getaway, or shopping spree!

Although rates are up marginally from their absolute lowest rate of less than 3.5% in 2012, historically speaking, mortgage rates are still ridiculously low. Consider that in 1981, rates on a 30-year fixed mortgage were more than 18%, and homes were still being sold!  The $220,000 home in the above example would have cost more than $2600 monthly, even with a 20% down payment!  This staggering number really emphasizes how low rates truly are right now.

If the slow rise in interest rates doesn’t add fuel to the fire, then consider declining inventory and increased demand which is skyrocketing the price of homes. Recovering from the Great Recession of 2007-2009, home prices have taken fast and sharp increases in recent years. Although the rise in home prices has slowed just a bit in more recent months, predictions still point towards an upward trajectory with no signs of stopping. As material and labor costs continue to increase, builders have no choice but to follow the ebb and flow of the price tide.  Although it’s hard to put a true cost on homeownership because of all the added benefits, it’s apparent that in terms of numbers, the cost of homeownership is increasing! Monthly mortgage payments are only going up from here.

But, as you know, home ownership is so much more than a numbers game. Home is a place to make your own, a place that offers comfort and safety for your family, and most importantly, a place where memories are made. As home prices and interest rates increase so will the cost of waiting. If your heart says you it’s time to purchase, your brain says it’s time to purchase, and your bank account says it’s time to purchase, then now is the time- the market also says it’s time to purchase! Don’t let the clock run out.

As always, rates are subject to change.  Figures in this post may not take into account all taxes and fees.  To prequalify for a loan, visit https://www.eastwoodhomes.com/building-a-new-home.