March 21, 2023

One of the most common questions I have been asked over the past couple of months is whether now is a good time to buy a house.

Considering how much home prices and mortgage rates have risen it’s a valid question.

Should you wait and hope that home prices fall further?

Should you wait for mortgage rates to come down?

Only you can make the decision that’s best for you and your family. To help you make that decision, I show you what the difference in monthly mortgage payment would be if you bought a home now compared to last year, and also estimate what that payment might be a year from now.

Watch the following video, or continue reading below, to learn more;

In the past year, mortgage rates have doubled and while home prices have given back some of their gains they are still well above where they were in 2019.

With continued uncertainty about the economy and persistent questions about whether or not the housing market will crash, many potential homebuyers have been left scratching their heads not sure what to do.

While perfectly timing home prices and mortgage rates is impossible, seeing the difference between where we were, where we are, and where we are likely to be, can be helpful.

I’ll share the assumptions that were made about the future below, but the following graph compares the monthly payment of a $500,000 home bought last year, now, a year from now, and now with a refinance in 2 years;

In all cases, it was assumed that a 20% down conventionally financed loan was used for the purchase.

Last Year

This time last year we were still in the midst of multiple offers and bidding wars. The amount over the list price you had to pay to win the bidding war varied, but the majority of the buyers I was working with bid anywhere from $20,000 to $100,000 over. For this example, I assume the home listed for $500,000 was able to be purchased for $550,000.

Based on 20% down, the loan amount would be $485,000, and with a mortgage rate of 3.5%, the total monthly payment (principal, interest, taxes, and insurance) would be $3,222.

Today

Homes today are selling for an average of 96.5% of the list price. Assuming the home listed for $5000,000 could be purchased for $485,000 the mortgage amount with 20% down would be $388,000. With a 6.5% mortgage rate, the total monthly payment would be $3,586 or $363 more per month than last year (ouch).

Next Year

While home prices nationally are expected to decline by 1.5% to 3%, the latest forecasts are projecting home prices in Frisco will increase due to the overall strength of our local economy and the number of people continuing to move here.

Zillow and Wallet Investor are forecasting price appreciation of 5% and I’ve seen local economic reports calling for up to 10% appreciation. Based on the most recent market activity, and given some new home communities have told me they will be raising prices this year as new phases are released, I have used 5% appreciation for this example.

With a purchase price of $525,000, a loan amount of $416,000, and the latest forecast projecting mortgage rates of 5.5% a year from now, the monthly payment would be $3,580. The payment increase of $12 per month is not significant, but realize you would have lost out on the $25,000 gain in equity by waiting a year.

Buy Now and Refinance Later

While mortgage rates are not expected to return to the levels we saw last year, the latest estimates I have seen are calling for mortgage rates of approximately 4.5% by 2025. My preferred lending partner, The Mortgage Nerds, offers buyers who purchase a home now the opportunity to refinance when rates fall with no out-of-pocket expense.

Assuming a home is purchased today and refinanced in two years, the total monthly payment after the refinance would be $3,082, which is $140/month less than the monthly payment had the home been bought last year.

If home prices do appreciate at 5% per year there would also be an equity gain of $51,250.

Bottom Line

Nobody knows what the future holds, therefore nobody knows for sure what the economy or the housing market will do. I present the scenarios and numbers above simply to show you actual numbers to help you make the best decision for you and your family.

I can tell you that there is nothing in the data currently to suggest we will see increased weakness in the Frisco real estate market in the months ahead.

If you’d like to track the latest numbers and trends in the Frisco real estate market the best way to do that is with my weekly market report. Here is a link to the latest Frisco Market Report that shows pricing trends, inventory trends, price reductions, days on market, etc., and it is all broken down by price range segments. From the Frisco Market Report, you can see the latest trends/numbers for any city or zip code of interest to you.

If you have questions about the local market, or a specific situation you’d like to discuss in more detail, please schedule a call with me as I’d be happy to talk with you about your unique situation.