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The Cost of Waiting

mark penn“Sure I want to get into the real estate market, but I just don’t think it’s the right time.” Boy, have I heard that one a lot! And everyone is certainly entitled to their opinion; I’ll never deprive anyone of that, although I have been known to try to change a mind or two along the way. But – is this the right time to buy? Let’s look at some numbers, with the provision that this exercise will only use numbers and forecasts, and is not meant to represent any specific property or transaction.

I’m going to start with some assumptions. I will use a purchase price that is the California Associations of REALTORs® (CAR) median price for single family homes in the SF Bay area. I’ll also assume a down payment of 20%, with the remainder being financed at a rate reflected in Freddie Mac’s Primary Mortgage Market Survey.

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Here’s how that spells out. If you bought a home in January of 2013 (median price, surveyed rate), you paid $548,890, and had a mortgage payment (principle and interest, or P&I) of $1972 per month. If you bought that same median priced home in January of 2014, you paid $630,470, and your monthly payment was $2556.

If we believe what most of the forecasters are telling us about the coming year, in January 2015, your same median-priced house will cost $661,994 and your mortgage (P&I) payment will be $2843. That’s $871 higher than it was in January of 2013. And, if you had bought when you started thinking about it in 2013, but waited until January of 2015 to pull the trigger, you would have been spending over $10,000 less in mortgage payments for that same home every year, assuming no crises along the way. (That expectation regarding interest rates uses an average of the projections by the MBA, FHMA and FMNA.) But what happened between 2013 and now is water under the bridge; those times are gone, even though they are still very large in our rear-view mirror. On the other hand, the forecasts for the next nine months are very much in our view and look to be pretty accurate.

What, then, does this tell us? To a degree, there is some crystal-balling going on here. That having been said, what was forecast in the last couple of years has come true, and it’s likely that the near future will continue to perform as expected.  If you were on the edge of affording a median-priced home a year ago, you probably can’t afford it now. And if you are on the edge now, unless your income changes significantly, you likely won’t be able to afford it next year.

Perhaps, more importantly, look at the money you are leaving on the table. Now seems to be “the time” for many reasons, not the least of which is that interest rates and prices will rise. It has taken a while, but they are moving now, and as the government exits some of its support of the mortgage market, and private investors step in further, you can bet that those rates will go up further. Stockholders are hungry and must be fed.

If there’s one thing I am not, it’s a hard-sell kind of agent. My clients will tell you that I don’t push. But, if ever there was a time for me to be gently nudging, that time is now.

A Bay Area native, Mark Penn has been a REALTOR® with Coldwell Banker since 2004. He is also active in animal welfare, and is a former educator, facilitator, and air traffic controller. Mark can be reached at mark@MyHomeInSonoma.com.