Cost of Waiting to Buy a Home in Cincinnati

I’ve been hearing it over and over lately… “I’ll just keep renting and wait for interest rates to come down later. Then I’ll buy a home.”

This has become a popular opinion this year, because it sounds very logical.

But what if you crunched the numbers and compared buying a home right now versus buying a home next year, or 2-3 years down the road? Would it really be a smarter financial decision to wait, rather than buy a home right now?

I did some digging on this issue and you may be surprised by the results…

 

Although many experts predict that mortgage interest rates will fall by next year, no one really knows what’s going to happen. But let’s assume for a minute that they’re right.

If the interest rate for a 30-year fixed rate mortgage loan drops from its current average of 7.62% to around 6% in 2024, that would provide home buyers will some much-needed relief from historically high interest rates in 2023. But as you may know, interest rates are not the only variable to consider when buying a home.

Home values are expected to continue to increase year over year for the long-term, due to historically low inventory in Cincinnati (and most areas across the U.S.) over the past few years. So far in 2023, home values have increased by nearly 4% compared to 2022. Although we don’t know for sure, we have no reason to believe that home values in Cincinnati will drop or even flatten at any time in the forseeable future.

To be conservative, let’s assume a 4% rise in home values for the next few years here in Cincinnati. And let’s also assume that interest rates will drop to 6% in 2024.

If you buy an average-priced Cincinnati home in 2024 with a 6% interest rate, you would save approximately $168 per month, compared to buying the same home right now with the average interest rate of 7.62%. That’s about $2000 of annual savings.

However, the value of the home would increase $10,000 while you wait (a 4% increase from $250,000 to $260,000).

So even though you would save $2000 annually due to the lower interest rate in 2024, it would take you 5 years to make up for the $10,000 in equity that you would have gained if you bought the home right now.

And if you buy a home now, you can always refinance your loan if interest rates go down later. Plus, your rate can’t go up if you lock into a fixed-rate loan.

I also crunched the numbers for other price points – $500K, $750K, & $1M – and if you wait until rates drop to 5% in 2-3 years. (Watch the video above for details).

SPOILER ALERT!

In every scenario, it would take several years for your savings from a lower interest rate to catch up with the equity you would gain if you bought a home now.

You’ve probably heard the old adage, “The best time to plant a tree was 20 years ago. The next best time is now!”

The same is true for buying a home, in most cases. If you buy now and hold for the long-term, you’ll most likely be much better off than trying to time the market.

But that doesn’t mean that you should buy a home.

I believe that buying a home or renting a home is more of a lifestyle choice than a financial decision.

If you don’t want to be tied down long-term or deal with repairs and maintenance, then you should probably rent rather than buy a home.

But if you plan to live in the same place for a long time and you want to build equity more than you want to avoid repairs and maintenance, then you should probably buy a home rather than rent one.

From a purely financial perspective, though, I understand why so many people have the knee-jerk reaction of waiting until interest rates come down. It seems very logical.

But when you dive deep and crunch the numbers, waiting to buy a home just doesn’t make sense financially.