Cost of waiting to buy a home
As I’ve told many people the stars are currently aligned for first-time home-buyers. Grant it, there is a lot of uncertainty and anxiety amongst US workers right now and if the potential for job loss is high it would NOT be a good plan to buy a home.
However, for those who feel secure in their jobs and have been waiting for prices to fall it is a good idea to start getting serious. After all, mortgage rates for loans requiring only 3% down remain very attractive and I believe homes in Portland have become much more affordable over the past few months.
But if that isn’t enough to convince you consider the cost of waiting. I actually got this example from a book I recently read entitled “Borrow Smart Retire Rich”.
The table below illustrates the savings an individual will make over a 4 year period assuming they can save $4,000 per year We’ll assume that their savings earns 8% annually:
| Year | Value | Change |
| 0 | $ 4,000.00 | n/a |
| 1 | $ 8,320.00 | $ 320.00 |
| 2 | $ 12,985.60 | $ 985.00 |
| 3 | $ 18,024.45 | $ 2,024.00 |
| 4 | $ 23,466.40 | $ 3,466.00 |
Conversely, here is a table that illustrates the cost of waiting. Here’s how much a $200,000 home will appreciate over the next 4 years assuming a 4% appreciation rate:
| Year | Value | Change |
| 0 | $ 200,000.00 | n/a |
| 1 | $ 208,000.00 | $ 8,000.00 |
| 2 | $ 216,320.00 | $ 16,320.00 |
| 3 | $ 224,972.80 | $ 24,972.00 |
| 4 | $ 233,971.71 | $ 33,971.00 |
As you can see over a 4 year period even though the individual was able to save $23,466 towards a down payment the home that they could have purchased 4 years ago has now appreciated in value by $33,971. Therefore, this individual has actually lost $10,000 in waiting this long to buy a home.
Posted: October 1st, 2008 under Home Purchase, Personal Finance.
Tags: appreciation, cost of waiting, first time homebuyer
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Time October 1, 2008 at 8:23 pm
[...] *Waiting to buy a home can prove a costly mistake. I blogged about this concept at this link. [...]