Why Buying a Home Now Could Be Your Best Investment—Even with High Rates.
Real Estate Market Trends: Why Acting Faster Matters
The housing market is constantly evolving, shaped by interest rate changes, economic trends, and buyer demand. In 2022, when mortgage rates increased, home price appreciation slowed down significantly. Before that, buyers faced intense bidding wars, driving prices higher. For example, in 2021 and 2022 home prices in the United States went up on average near 15% per year. But in 2023 and 2024 home prices in some places in the US were flat, and in others went up an average of less than 5% per year. This underscores the impact that higher interest rates (and lower interest rates) can have on price movement in the home market.
Given this, many experts predict that home prices will rise much more rapidly again as interest rates drop. Buyers waiting for lower rates could face higher competition, leading to rapid price increases. So, what should someone do in this situation?
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The Smart Strategy: Buy Now, Refinance Later
If home prices are expected to rise, why wait? The best strategy may be to buy now while prices are stable and refinance later when rates drop. Let's look at an example that will illustrate this point.
Example Comparison:
- Buying today: A home costs $400,000, and the buyer locks in that price.
- Waiting to buy later: Let's assume the same home costs $450,000 when rates drop.
- Future refinancing: If rates fall to 5.5%, the homeowner who bought earlier can refinance and have a lower mortgage payment than someone who waited and purchased at the higher price.
Buying now allows you to:
- Avoid bidding wars when rates drop
- Build equity faster as home values rise
- Refinance later to reduce your monthly mortgage payment
Monthly Mortgage Payments:
Let's look at a very simplified example:
Buyer who waits: Pays $2,478 per month principle and interest. This is a 5.5% interest rate on a 30-year loan amount of $436,500. (97% of $450,000)
Buyer who buys now & refinances later: Pays $2,203 per month principle and interest. This is a 5.5% interest rate on a 30-year loan amount of $388,000. (97% of $400,000)
- Monthly Savings: $275
- Annual Savings: $3300
- PLUS, the buyer who purchased earlier will have $50,000 in home equity, while the person who waited misses out on that equity growth.
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Other Reasons to Buy Now
- Less competition – Fewer buyers mean more negotiating power and better deals. Especially for First Time Home Buyers. When there are multiple offers being made on the same home, it is very difficult for a buyer who does not have a large down payment to get their offer accepted by the seller.
- Home price appreciation – Real estate values continue to rise over time. While it is not uniform, over time real estate prices have historically gone up in most locations in the United States. Many locations have a long-term average of appreciation of around 5% per year.
- More inventory choices – Buyers can select better locations and amenities. You are much more likely to be able to buy the home you want when there are fewer buyers bidding on a home.
- Tax benefits – Homeownership offers valuable deductions for mortgage interest and property taxes. Of course, you need to consult with your tax advisor to understand how this affects you.
- Fixed housing costs – Renting often leads to higher future rent increases, while buying offers payment stability. The principle and interest portion of your mortgage payment (which is typically the largest part) stays fixed on a fixed rate mortgage. Further, if rates drop, you may be able to refinance into a lower rate and have your payment actually go down!
Home Equity: A Secret to Building Wealth!
Many people consider owning a home to be one of the best investments they will ever make.
Homeownership is one of the most powerful ways to build wealth over time. Unlike renting, where payments only cover living expenses, owning a home allows you to build equity—an asset that grows in value and strengthens your financial future.
Understanding how home equity works, how to increase it, and how to leverage it effectively can help homeowners maximize their wealth-building potential
How Home Equity Builds Wealth
1. Long-Term Asset Growth
- Homeownership is a long-term investment, and historically, home values tend to appreciate over time.
- While markets fluctuate, the national average appreciation rate is around 3-5% per year, meaning homeowners naturally gain wealth over time.
2. Forced Savings
- Paying a mortgage is similar to forced savings—each payment increases your ownership in the property.
- Unlike renting, where payments go to a landlord, mortgage payments build a tangible asset.
3. Leveraging Equity for Financial Growth. Home equity can be used strategically to:
- Finance home improvements that increase property value
- Invest in additional real estate for rental income
- Secure home equity loans for major expenses or debt consolidation
- Using equity wisely enhances financial security while growing personal wealth
Let's Consider a Simplified Example:
- Let's assume that you buy a $400,000 home, and hold it for 10 years.
- Let's assume your mortgage rate is 6% on an original loan of $388,000.
- Let's assume your home appreciates at 4% per year.
After 10 years you would have gained home equity of $255,386. ($192,097 from home appreciation and $63,299 from paying down the loan.) Once you add your original $12,000 investment, you have total home equity of $267,386.
Final Thoughts: Is Now the Right Time to Buy?
- Buying a home now, even with higher rates, can be a smart financial move.
- Lock in today's price before home values rise
- Start building equity while others wait
- Refinance later for lower mortgage payments
By acting now, homebuyers can secure their future, avoid competition, and benefit from appreciation—rather than paying more later.