I just had a phone call with a client who asked the question: “Josh, we have about 10% to put down and we’re trying to figure out should we wait another year so that we have saved up 20% for a down payment, or should we go ahead and buy now?”
I said, “Well that’s a great question. Before I answer the question, let’s think about what kind of a market we’re in and what might change between 2018 and 2019.”
I showed him the chart below and I said, “Look at what’s happened with real estate appreciation rates over the last 12 months. You’ll see in Utah, real estate prices have appreciated by 10.8% on average; in the more competitive price range, below $350,000, even more aggressively than that. Roughly, homes are going up about 1% per month currently so far in 2018. What that means is if you are buying a $400,000 house, each month you wait it costs you $4,000. By time you get to next year, if the trend continues, the $400,000 house will be selling for $440,000 or $448,000.”
The challenge with saving the additional 10% is by time you get to 2019 and have your money saved, that extra money might just go to pay the additional cost of the home because of appreciation. Therefore, it is something that you really need to think through. You may not be able to save as fast as the market is appreciating.
I also mentioned to them 30-year fixed mortgage interest rates. This is data collected from Freddie Mac going back to 1971; what a rollercoaster through the ’80s and then you see that interest rates have bottomed and are starting to go back up. Now that 5% for 2018, that’s an estimate. However, what has happened is the Federal Reserve is no longer artificially pushing long-term mortgage rates down. That QE (or quantitative easing) program ended at the end of 2017, and as soon as that happened interest rates started to move up, unemployment is low, we’re adding an incredible number of jobs to the economy, stock market’s doing great, all of those things indicate a higher interest rate market ahead.
So if home prices have gone up 10%, and your mortgage interest rates are up another half or 1%, there’s no way you can save fast enough to make up for the way the market is headed.
Now I said, “Let me just mention one other thing.” I said, “If you make the decision to rent, that’s kind of like having an adjustable rate mortgage on your home. Are you comfortable with that?”
They said, “Well, no. We’d want a 30-year fix.
Then I said, “Well let me show you this chart about median asking prices for rent, going back to 1988. There’s not very many dips here. All we see is rent continuing to go up and up and up and up, and with a booming economy and full employment; we can likely see that to continue in the future.”
Hey, I’d love to answer any additional questions you might have in regards to your situation. We have some 100% financing programs through Chenoa that we would love to tell you about. I’d encourage you to leave a comment, or message us, or give us a call. It would be an honor to have the opportunity to help you with your new home purchase.