Tuesday, December 14, 2021 / by Ken Couture
To determine whether you should buy now or wait a year, you can ask yourself two simple questions:
Where will house prices be one year from now? Where will mortgage rates be a year from now? Let's shed some light on the answers to these two questions.
Where will house prices be a year from now? The three major players in the housing industry expect house prices to continue to rise in 2022. Here's their forecast:
Fannie Mae: 7.4% Freddie Mac: 7% Mortgage Bankers Association: 5.1 According to the National Association of Realtors (NAR), the median price of a home today is $353,900. Using the average of the three price predictions above (6.5%), a home selling for $353,900 today will be valued at $376,904 by the end of next year. As a potential buyer, you will therefore have to pay an additional $23,004 in the meantime.
Where will mortgage rates be a year from now? Today, Freddie Mac announced their 30year fixed mortgage rate was at 3.1%. However, most experts believe mortgage rates will rise as the economy recovers. Here are the forecasts for the fourth quarter of 2022 by the three major entities mentioned above:
Fannie Mae: 3.4% Freddie Mac: 3.7% Mortgage Bankers Association: 4% That averages out to 3.7% if you include all three forecasts. Any increase in mortgage rates will increase your costs.
What Does It Mean for You if Home Values and Mortgage Rates Increase? If both variables go up, you'll end up paying more in your mortgage payment each month. Let's say you buy a $353,900 home today with a 30-year fixed-rate loan at 3.1% (Freddie Mac's current rate) after you make a 10% down payment. According to acceptecalculator.net, your monthly mortgage payment should be around $1,360 (this amount doesn't include insurance, taxes, and other fees, as these vary by location).
That same home in a year could cost $376,904 and the mortgage rate could be 3.7% (based on the industry forecast mentioned above). Your monthly mortgage payment after a 10% down payment will be about $1,561.
Add to that about $23,004 that home of similar value will increase in equity this year due to the increase in home prices and the total increase in equity you can earn buying this year $95,364 ($72,360 in mortgage savings plus a potential equity gain of $23,004 if you buy now).
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