When it comes time to look for a new home the first thing you do is figure out a budget so you know what price range to search in. However, it’s important that you not only look at a home’s price but also consider the long-term cost of the house.
That’s right, there can be a significant difference between the price of a home and the cost of it after everything is said and done. Although home prices have been rising across the real estate market, ultra-low mortgages make the COST of a home today more affordable than last year. Let’s break it down together.
The Difference Between Cost and Price
The price of a home is what the home is listed for. There are a lot more factors that go into the ‘cost’ of that home, however. Most importantly the interest rate you secure on your mortgage loan and the home’s appreciation over time. The rate at which these two factors change over time is commonly referred to as “The Cost of Waiting”.
The longer you wait to buy, the more likely you are to pay more in interest rates (if they rise) and appreciation costs. Plus the sooner your buy that home the sooner the appreciation starts to stack up in your favor…
2020 Market Outlook
Currently, average mortgage rates are at 2.88% according to our Mortgage Watch, giving house hunters more buying power than they had last year. Because of the uncertainty created by the coronavirus, the Federal Reserve has kept interest rates low to support a shaky economy and consistently kept average rates hanging around 3%. These low rates, overwhelming buyer demand, and tight inventory have pushed the housing market’s busy season straight through to at least the end of 2020. According to the National Association of Realtors Chief Economist Lawrence Yun, 2020’s housing market has outperformed the 2019’s housing market, predicting that this year’s home sales would end up higher than the 5.34 million homes sold in 2019.
So while California’s strong housing recovery is encouraging motivated buyers to purchase homes, house hunters are coming up against low housing inventory which continues to push up home prices and creates tough competition for the limited homes available on the market. But it’s important to understand that the cost of buying with today’s low rates has a bigger impact on your wallet than the price of homes for sale.
Let’s look at the comparison
Here’s a simple cost comparison of the significant impact of today’s low rates on the cost of your home. This is based on a 30-year mortgage loan today vs. last year when rates were hovering just below 4%.
DateMortgage AmountInterest RateMonthly PaymentLast Year$350,0003.73%$1,621Today$365,0002.87%$1,513
Each month, that’s a difference of $108. Over the entire life of your loan, that’s a difference of $38,880! So, what are you waiting for?
Reach out the a First Team agent today to get your homebuyer journey started. In today’s highly competitive real estate market, it’s important to have a plan and be prepared!
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