Dream Home May Be Affordable Today, But Not Tomorrow
Appreciation When Deciding Time to Buy
Homes in the United States continue to appreciate at a record pace—12.02 percent (from third quarter 2004 through third quarter 2005) according to a report by the Office of Federal Housing Enterprise Oversight. That’s music to the ears of the 68.3 percent of Americans who already own a home, but first-time home buyers may be watching the home of their dreams slip further from reach every year.
Home buyers tend to focus on mortgage interest rates and the size of the savings account they have established for their down payment when deciding the right time to buy. The impact of appreciation is not typically top of mind for home buyers, but it should be. Appreciation can have a significant financial impact on the home buyer’s pocketbook and their ability to purchase a home.
For example, a home for sale a year ago at $200,000 would cost $224,040 this year, based on the 12.02 percent average appreciation in the United States. That $24,040 hike in price not only makes a big difference over the life of a 30-year mortgage, but it also has an immediate impact on the wallet.
Assuming that mortgage interest rates remained steady at 6.5 percent, the homebuyer would need $4,808 more in savings to contribute to a 20 percent down payment. In addition, principal and interest on the monthly mortgage payment would increase by $121* per month.
With interest rates still historically low today, and with no end in sight to the trend of rising appreciation, we advise home buyers to jump into the market now. For most, it is the better financial decision, especially when prices are increasing at a faster pace than consumers can save.