Should I buy a new home right now or wait until next year? It’s a common question potential buyers are asking themselves right now.
The economic recovery that experts forecasted is starting to take shape: the number of mortgages in active forbearance is decreasing compared to six months ago, fewer people filed for unemployment insurance this month than in previous months this year and the average FICO score of the American consumer has increased since April 2020.
What does this mean for homeowners now? It might just cost you more to wait until next year to buy a new home.
3 Reasons You’ll Pay More If You Wait to Buy Until Next Year
There are three big reasons you might end up paying more if you wait until next year to buy a home.
1. Home values are rising.
We’ve mentioned rising home values before as a good reason for potential buyers to purchase a home this year, whether you’re a first-time or repeat buyer.
Most major housing entities predict that home values, and therefore prices, will continue to rise over the next 12 months. Zelman had the highest projection at 10.6% appreciation in the next year, but most predictions put appreciation around 8.9%. If you’re waiting to buy until well into next year, you might just find yourself paying more for a new home than you would this year. For context, that’s an additional $26,700 on a home that would cost $300,000 this year.
2. Interest rates are predicted to increase.
The cost of homes is also expected to rise due to a project in mortgage rates which have been historically low for the last year year. Mike Fratantoni, the Chief Economist for the Mortgage Bankers Association, said that while interest rates will remain at near all-time lows, we will see a gradual increase over the next three years. While these are still considered good interest rates, if you’re hoping to lock in a record-low rate, you’ll have to move on it soon.
3. Home affordability for the next few years is uncertain.
Home affordability is measured by the National Association of REALTORS®’ Housing Affordability Index. It measures whether a typical family earns enough to qualify for a mortgage on a typical home (according to national and regional data) based on price and income data. The higher the index number, the more affordable it is to buy a home.
Home affordability has stayed steady over recent years, but this month saw the first decline in awhile. According to Mark Fleming, the Chief Economist for First American Financial Corporation, home affordability is still higher than it was a year ago mostly due to falling interest rates. While one month of decline doesn’t mean we can expect a continued drop in the months to come, it does mean that rising home values and projected increases in interest rates may affect home affordability over the next year.
How do I find available homes for sale?
You might be looking at this data and thinking, “That’s nice but what if I can’t find a new home to buy?” Activity is still up in most markets but inventory is still sitting at a historic low of 2.4 months as homeowners are reluctant to list their homes on the market. If you’re looking to buy a new home, it’s difficult to start when there’s not a lot listed!
This is where your real estate agent comes in. Through their networks and agency connections, they have access to “hidden inventory” (homes that are coming to the market but not listed yet) and can help you hunt for what’s available and negotiate a good sale price for you. Use your agent as an inventory resource and you might be surprised by what they can find for you!
Should I buy a new home? Historically low interest rates and rising home values have only strengthened the argument for buying and selling in this market. Combined with rapidly shrinking inventory, the housing market has become competitive for buyers. However, this time of year could work in buyers’ favor. Any sellers who have their homes on the market right now are likely hoping to sell before school is back in session and the end-of-year holiday blitz begins.
Wondering how you can buy a new house and sell your old one at the same time in this market? Our guide will help you determine if you should buy a new home first or sell your old home first and which strategy works best for you.