The Coast of Waiting

When you reach a certain age, you begin realizing that every decision you delay making comes with a price tag. While there are benefits to waiting for some things, other postponements can have a fairly hefty penalty. The problem is that a person may not fully understand the actual price tag associated with a delay and consequently lose a lot of money without even realizing it.

Such can be the case when delaying the purchase of a home. Some buyers believe that prices are too high and will collapse at some point. Some hope that interest rates will lower if they wait. Yet others are waiting to save more for a down payment so they can buy the home of their dreams rather than buy a smaller house now and work their way up. Unfortunately, many do not take the time to plot out the potential losses incurred by waiting. 

Let’s say a person wants to buy a home that is currently $800,000, is putting 20% down and can obtain an interest rate of 6.75%. Let’s also assume the market will only increase 3.5% over the next 12 months and that rates will dip .5%. If a buyer waits 12 months to buy the same home, the price will increase by $28,000, $5,600 more will be required for the down payment, the loan will be $22,400 higher and closing costs will be an additional $280. On a positive note, the monthly payment will drop $72. When you add the numbers, however, the buyer will need to pay an additional $33,600 to purchase the home. If home values increase by 4%, then the amount required moves up to $38,400.

Some buyers, convinced that the market and/or rates will decrease in the short term, decide to wait, hoping to score a home at a lower price. While this strategy might seem wise in the short term, it is called “timing the market” and, over the years, I have personally seen many buyers get priced out as prices and interest rates have not behaved as they hoped. 

By buying now, instead of paying an additional $33,600 next year, that money would ‘be in their pocket’ in the form of equity. Their taxes would be lower due to homeowner’s tax deductions and their monthly payments would be building their own wealth, not some landlord’s. Turns out the price tag of waiting can be high indeed. 

Carl Medford is a licensed Realtor with Keller Williams Realty and a licensed general contractor.