On the surface, a lower interest rate for your first home or your next home makes wise financial sense, correct? After all, the lower the interest rate, the lower your monthly payment. Seems like a no brainer.
Here’s the issue with that line of thinking in today’s real estate market. The pandemic, inflation and rising interest rates have all contributed to the shortage of homes in the United States. The housing shortage is a result of supply and demand being out of whack. There are currently far fewer homes for sale than buyers interested in purchasing a new home, leading to rising home prices.
Current interest rates are hovering around 7% and many in the industry believe they are likely to fall to 6% in 2024. The average home buyer would look at this information and surmise that waiting for the lower rate would only make sense if the end goal was to have a lower monthly mortgage payment. But let’s do some math.
A mortgage payment on a $300,000 house today at 7.25% interest ($2,050) is actually lower than waiting around and having to pay $350,000 for the same home do to added buyers in the market. That same home at $350,00 with a mortgage of 6.00% interest ($2,100) will actually lead to a higher monthly payment. Additionally closing costs would be significantly cheaper if the home were to be purchased at the lower price.
An even brighter prognosis exists for new construction homes. New construction home inventory is on the rise and the benefits of purchasing new are significant.
- Everything is new and often under warranty, saving the new home owner repair costs in the short term.
- Builders often offer interest rate savings of as much as 2% if the buyer utilizes their preferred lender
- Builders often offer concessions such as closing cost assistance or builder upgrades that add to the value of the deal.
- Buyers are able to choose the layout that best fits their family needs, eliminating the need for home renovations when purchasing a previously owned home.
- New construction home communities often offer amenities in the neighborhood that would not exist in most neighborhoods of previously owned homes.