When is the Best Time to Buy? Low Interest Rates or Low Prices?
Updated: Aug 26, 2021
As a real estate agent that used to lead the lending division for a financial institution, people often ask me if it's better to buy a home while interest rates are low or if it's best to wait for home prices to decline. My answer is, while it depends on many factors, buying a home now with a lower interest rate can provide more significant savings than waiting for a home's value to drop $50,000 or more. When you compare today's data to that of two years ago, you can see that home values have gone up while interest rates have dropped. For example, in Torrance, CA, homes sold for a median price of $870,000 in July 2021 compared to $805,500 in July 2019.
Now, let's compare interest rates. On July 30, 2021, the average 30-year fixed APR was 2.842%, and on July 30, 2019, it was 4.1%.
Using the figures above, we can see that the monthly payment of a home purchased in July 2021 is LOWER than that of a home purchased in July 2019.
Here's how we break it down:
In July 2021, the monthly payment of a 30-year fixed 2.842% on a borrowed amount of $696,000 (median sold price of $870,000 minus a 20% down payment was $2,875.39.
In July 2019, the monthly payment of a 30-year fixed 4.1% on a borrowed amount of $644,400 (median sold price of $805,500 minus a 20% down payment) was $3,113.73.
The savings of the comparison figures above is even more significant when you compare the total spent over the life of the loan. For example, the total spend amount for the home purchased in July 2021 will be $1,035,140, whereas it will be $1,120,942.80.
The above example demonstrates how lower interest rates can make a home more affordable even with higher prices.
If you determine that you're ready to buy a home, I encourage you to start the home buying process now, while rates are still low. There's no way to predict what will happen to rates in the future; however, many forecasters are predicting that rates will begin to decline and could go up a full percentage point (close to where they were at two years ago) by the end of 2022.
While I am a real estate agent, I am passionate about lending topics. Why? Before becoming a real estate agent, I used to run the lending division for a financial institution, changed some of its policies to better reflect the mission, and introduced new lending programs.
I am committed to 'One Client, One Excellent Service at a Time.' So please do not hesitate to contact me if you have any questions about buying, selling, or even renting a home. I will be honored to give you the best real estate experience you have ever had.