According to the Orange County Register, median home prices eclipsed $935,000 at the end of 2016, which begs the question, “Is now a good time to buy?”
Of course, there are so many factors that will ultimately have an impact on the decision to buy now or hold out for better market conditions. I would suggest that mortgage interest rates play an important factor in that decision.
In late 2016, mortgage interest rates on a 30-year fixed loan bottomed out at 3.46% according to Bankrate.com. A home with a purchase price of $500,000 @ 3.46% would equate to a $1,787.26 monthly mortgage payment. Today, that same $500,000 house equates to a $1,991.25 monthly payment at 4.35%, which represents a 12% increase in your monthly mortgage expenses.
The Mortgage Bankers Association predicts that the 30-year fixed-rate mortgage will rise gradually over 2017, averaging 4.7% in the fourth quarter. The National Association of Realtors expects the 30-year fixed to be around 4.6 percent at the end of this year. This means that the same $500,000 home purchased at the end of this year may cost around $2,074.55 a month.
Look at it a different way: A buyer that pulled the trigger on a home purchase in late 2016 could have afforded a home valued at $580,000 ($2,073.22/mo @ 3.46%) versus only a $500,000 home if that buyer had waited until the end of 2017 ($2,074.55/mo @ 4.7%). That $80,000 of buying power lost could represent an extra bedroom, that 3-car garage you always wanted, or a variety of other things.
If Orange County real estate prices rise 1% in 2017, a home you’re interested in now that has a sell price of $500,000 might be $505,000 at the end of the year. That change in value is negligible compared to the forecasted rise in interest rates, at least as far as your monthly payment is concerned. As mentioned above, there are so many things to consider when purchasing a home and I would never tell anyone to run out and buy a house just because mortgage rates are still pretty low. However, it might be something to consider!