Buying a Home: The Cost of Waiting

Buying a Home: The Cost of Waiting | Keeping Current Matters

Whether you are a first time buyer or a move-up buyer, you should look at the projections housing experts are making in two major areas: home prices and mortgage rates.

PRICES

Over 100 economists, real estate experts and investment & market strategists were recently surveyed. They were asked to project where home prices were headed. The average value appreciation projected over the next twelve month period was approximately 4%.

MORTGAGE INTEREST RATES

In their last Economic & Housing Market Outlook, Freddie Mac predicted that 30 year fixed mortgage rates would be 4.8% by this time next year. As of last week, the Freddie Mac rate was 4.14%.

What does this mean to you?

If you are a first time buyer currently looking at a home priced at $250,000, this is what it could cost you on a monthly basis if you wait to buy next year:

First Time Homebuyer's Cost of Waiting | Keeping Current Matters

If you are a move-up buyer currently looking at a home priced at $500,000, this is what it could cost you on a monthly basis if you wait to buy next year:

Move Up Buyer's Cost of Waiting | Keeping Current Matters

Bottom Line

With both home prices and interest rates projected to increase, buying now instead of later might make sense.

Millennials and Student Debt: We Knew They Were Wrong!

Millennials & Student Debt: We Knew They Were Wrong! | Keeping Current Matters

For almost a year now, we have been trying to debunk the myth that student debt is keeping the vast majority of Millennials from purchasing a home.

We explained that Millennials have purchased more homes over a recent twelve month period than any other generation as was reported by the National Association of Realtors).

We explained that the homeownership rate of people currently between the ages of 25-29 is 34.3%. That is higher than the 33.6% rate members of the previous generation (people currently between the ages of 45-49) achieved when they were that age (as per John Burns Consulting).

We explained that a recent survey showed that almost three out of every four (74%) young adults between the ages of 18-34 plan to buy a home in the next five years with 32% planning to do it in the next twelve months.

However, no matter how hard we tried, the same recourse was trumpeted back at us – What about student debt?

The good news is that the real facts about student debt are coming to light. Last week, The New York Times posted an article titled The Reality of Student Debt Is Different from the Clichés. This article went into great depth regarding the findings of a new study just released by the Brookings Institution, Is a Student Loan Crisis on the Horizon? which looked at data through 2010. The NYT article quoted key elements of the report:

  • 58% of young-adult households have less than $10,000 in debt. An additional 18% have between $10,000 and $20,000
  • 36% of households with people between the ages of 20 and 40 had education debt, up from 14% in 1989. Some of the increase stems from the good news that more people are going to college.
  • Taking financial aid into account, the average tuition at private (nonprofit) colleges has not increased any faster than overall inflation over the last decade.
  • Because the incomes of college graduates have grown since the early 1990s, the share of income that a typical student debtor has to devote to loan payments is only marginally higher than it was in the early 1990s — and somewhat lower than it was in late 1990s. It was 3.5% in 1992, 4.3% in 1998 and 4% in 2010.
  • The burden for the people with the most debt is significantly lower today than two decades ago. Someone at the 90th percentile of debt had to devote 15% of their income to repayment in 2010, down from 20% in 1992.

Bottom Line

The authors of the actual study put it simply in their conclusion:

“Despite the widely held belief that circumstances for borrowers with student loan debt are growing worse over time, our findings reveal no evidence in support of this narrative. In fact, the average growth in lifetime income among households with student loan debt easily exceeds the average growth in debt, suggesting that, all else equal, households with debt today are in a better financial position than households with debt were two decades ago. Furthermore, the incidence of burdensome monthly payments does not appear to have become more widespread over the last two decades.”