When is the Best Time to Buy a Home? 

Is anyone else reeling from the Alaska housing market of the past two years? With record low-interest rates, the housing market was booming, and home prices SOARED! Now that interest rates are rising, we are often asked if you should buy now or wait for interest rates to drop again? So, when is the best time to buy a home?

The simple theory of home price versus interest rates is that when interest rates are high, home prices go down as fewer people buy. When interest rates are low, home prices increase because more people want to take advantage of the low rates. So, based on that thinking, home prices should level out soon. While this is an excellent idea, the market has been a bit unpredictable, and it is not a concrete fact that it is what will happen in the coming year. 

Today we want to share some things to consider when it comes to timing your home purchase and how to decide when is the best time to buy your dream home no matter what the market hold in 2022 and beyond. 

How Do Interest Rates Affect Your Monthly Payment? 

Why should you care about interest rates? Over the course of a 30-year mortgage, a single percentage point can cost the borrower thousands, so getting the best rate possible is essential. 

Let’s do some simple mortgage math! 

You find a four-bedroom home you love for $400,000, and your interest rate is 4%. After 20% down (80K) and closing costs, you are financing $320K, making your monthly payment $1528 before taxes and fees. 

At a 3% interest rate, the same home would be $1349 per month before taxes and fees. That is a total savings of $64,440 over the course of a 30-year mortgage! That is a massive difference from just a single percentage point! 

If you think that the best option is to wait for interest rates to drop, consider this alternate scenario. 

The same home is in high demand because there is low inventory, and many buyers are taking advantage of the low-interest rates. You purchase it for $500,000. After 20% down ( $100k) plus closing costs, you finance $400k. 

At 2% interest, your payment is $1478. That is an extra $18,000 over the length of your 30-year mortgage. So, which option is better? Lower interest or lower purchase price? 

In our opinion, the best time to buy is when you find the home that meets your family’s needs, AND you can afford your mortgage payment and the costs that come with homeownership. Interest rates are constantly fluctuating, and if they fall, you can refinance and reduce your monthly payment. You cannot reduce the amount you paid for your home. That is a fixed number once the sale is final. 

Will the Real Estate Bubble Pop? 

Many people assume that we are headed for another recession like the country experienced in 2007. Potential homebuyers think that they should wait it out since there is always a fall at some point, right? Data predicts otherwise, so while housing prices may stabilize, they are not likely to have a drastic fall like 15 years ago. 

The housing crisis in 2007 was super complicated, but simply put, lax lending practices fueled it. It was extremely easy to obtain a mortgage. Programs like adjustable-rate mortgages allowed borrowers to start with low payments, and then their monthly payment would soar, and when they could not pay, they would lose their homes. Foreclosures flooded the market, and it turned into a downward spiral. 

There are many new regulations in place for lenders and homebuyers to avoid repeating history. Even if home prices drop drastically, the system is not dependent on continued rising prices to remain healthy. Everyone buying now is highly qualified, so we will not likely see another housing crisis of that magnitude anytime soon. So, if you plan to wait for home prices to fall before you buy, you may be waiting for a long time.

What is the Bottom Line? 

As we mentioned before, buying a home should be based on your ability to afford the mortgage payment and the costs associated with homeownership. Ideally, you would buy when home prices and interest rates are low, but since that does not seem to be happening soon, you should calculate short and long-term costs of interest rates versus home price. Make your purchase when the number makes the most sense for your family and financial situation. 

If you need help figuring out the numbers get in touch! We love to help strategize the best time to secure a mortgage and buy a home with our clients. We can also help you with ideas to increase your credit score and navigate different mortgage options. Whether you are buying a home now or plan to buy in the future, give us a call! We are honored to help you at any stage of the home buying process!