If you are have been mulling over a home purchase, have been hesitant to “move up”, or are considering purchasing an investment property or a vacation home, now is a great time. A rise in interest rates and home prices could be your best reason to get off the fence and act soon!
Rates are currently hovering around 4% for a 30-year fixed-rate mortgage. But many economists are predicting that they will steadily rise in the coming months. As a buyer, it’s important to understand the impact that this can have on housing affordability. The graph to the right shows that an increase in just one or two points can diminish purchasing power by $100,000 or more.
If you are a homeowner paying 5%, 6%, or 7% or higher, you might be surprised to learn how much more home you can get for your money at a 4% interest rate.
Home prices have been steadily increasing over the last few years. In fact, since the slump, many areas have seen double-digit increases over multiple years and have risen far above where the market was before the recession. Tomorrow’s prices are not likely going to be as low as they are today.
Although these are two of the most compelling reasons to buy now, also consider:
Tax Benefits – Most U.S. homeowners can deduct the cost of their annual mortgage interest and real estate property taxes from their annual taxable income to reduce their tax liability. This deduction is also available for certain qualifying second properties.
Leverage – When a person buys a stock or a mutual fund, they have to use all of their own money to gain equity. However, when a person invests in real estate and takes out a loan to make the purchase, they leverage their down payment and use the bank’s money to gain appreciation on the entire home – not just the portion the down payment covered.
Demand – Unless the population decreases, housing is an “in demand” commodity. The United States needs approximately 1.2 – 1.5 million new homes each year to accommodate growing population and the demolition of decayed properties. The drastic decline in new construction from 2006 through 2012 created a shortage of new homes. We have not recovered from this yet, which means demand will continue to be high for several more years.
Forced Savings – When you invest in a home, a portion of that monthly payment goes towards your principal, meaning with each payment your net worth increases. Between appreciation and paying down the debt, your equity rises year after year.
Therefore, time is of the essence and the best time to buy is now when prices are lower than they will be in the future and interest rates are still near historic lows. If you would like to learn more about your particular property specifics, I would be happy to help!