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The Cost Of Waiting To Buy A House

Eric Whitener

Eric is the drummer of our band...

Eric is the drummer of our band...

Sep 15 9 minutes read

Did the people who bought a home in 2021 make a huge mistake? In this video, I’m going to walk you through some of the differences between 2021 and 2022 to see whether 2021 homebuyers made the right choice. We’ll look at the numbers of everything from average sales prices to interest rates to get a complete picture of the market.

A Crazy Year

In Knoxville, Tennessee, and across the country, 2021 was a crazy year for real estate. People were buying homes left and right. There were multiple offers and bidding wars for anything that hit the market, and homes sold for way over asking price all the time.

All of this craziness caused a lot of buyers to get frustrated and drop out. Many people would say they were just going to wait to buy until the market slowed down and prices came down. However, looking at today's market and what's going on got me thinking about those folks that bought in 2021. Did they make a huge mistake or not?

Average Prices And Interest Rates

Looking back in August 2021, the average sales price in the Knoxville area was $343,000. Fast forward to 2022, and the average sales price is now $391,000. That's a $48,000 difference. The median sales price in 2021 was $285,000, while in 2022 the median sales price is $325,000.

To clarify, the median sales price means that half the homes have sold below and the other half sold above that dollar amount. Still, that's a $40,000 difference. Needless to say, home prices went up somewhere between $40,000 and $50,000 in one year.

Now let's look at interest rates, as a lot of people have to finance to buy a house. In 2021, we saw interest rates in the 3s, eventually going all the way down to 2.65%. Here we are in August of 2022, and rates are 5.5-6%. For some folks, they’re a little higher than that. We may even see 6.5%  this year.

Buying A Home In 2021

Let’s take this information and boil it down into an actual example. Imagine a home that was for sale for $335,000. If a buyer had planned to get a 90% loan-to-value loan on that, they'd be putting 10% down, or about $35,000. They bid over asking by 5%, adding another $16,750.

 They’re going to pay cash, making it a total down payment of $51,750. That's a lot of money. This is the reason why a lot of buyers couldn't win. They weren't able to or willing to either pay over or have the cash in hand to do so.

With that purchase price and downpayment, we're looking at a mortgage of around $300,000. With a 3% mortgage at 30 years, principal and interest payments work out to be $1,265 a month. Taxes and insurance also get added to that, though we won’t consider those in this example.

Buying A Home Now

Let's fast forward to August 2022. That same house is now worth $375,000, or $40,000 more. However, you don't have to bid over asking price, and it might not even be a multiple offer opportunity. You're going to pay full price, and you're still putting 10% down.

That works out to $37,500, considerably less than what the person in 2021 put down by paying over asking. This means you're financing $337,500 for 30 years at a 5.5% interest rate, which is probably better than it is today. That payment works out to $1,916 principal and interest.  

Who’s Spending More?

This means the person who bought in 2021 has a payment that's $651 a month cheaper. They also pay less annually by $7,800. The difference in downpayment cash out of hand between the two was $14,250. It will only take approximately two years for the person who bought in 2021 to save the difference. After that two years, they're just saving money over the person who bought in August of 2022.

Let's not forget though, that the person who waited to buy in 2022 most likely had to rent. The average rent for an apartment in the Knoxville area is approximately $1,500. That works out to about $18,000 a year that person paid in rent that they don't get any tax benefit from. They also get nothing back when they move out except for their deposit.

Additionally, they also missed out on that $40,000 in equity that the person in 2021 bought. It sounds like the person who paid 5% over in 2021 actually made a really good decision.

A Shifting Market

The market is shifting, and people have been waiting for prices to come down—even though there are no true signs that an actual price reduction across the board will happen. That is the hope of many buyers. Let's look at an example where you get to take 5% off of the purchase price right off the top.

On that $375,000 house, that’s a savings of $18,750. You're still putting 10% down, so there's $35,625, you're borrowing at today's rate of 5.5%, which is on the low side. A total amount of $320,625 for 30 years works out to a payment of $1,820 principal and interest. That’s a $555 difference between the person who bought in 2021 and paid over asking and the person who bought in 2022 and paid 5% below asking.

This comes to an annual difference of $6,660. With the difference in the downpayment of $16,125, it would take approximately two and a half years for the person who bought in 2021 to make up the difference in the cash that they put out of pocket to buy that house. After that, they're saving money every month—about $555 or more.

Should You Buy?

If you’ve been waiting to buy, you've ruined it for almost two years waiting for home prices to come down. Now you're in the hole by $36,000 in rent, and you still missed out on some serious equity game. There's a Chinese proverb that says “the best time to plant a tree was 20 years ago. The second best time to plant a tree is now.”

Think about it: a lot of people got hung up on whether or not property values would go down or didn't think about certain questions. What if interest rates don't get any better? What if property values don't go down? What if rents continue to climb? There are a lot of good reasons why somebody should own a home, even in today's market.

You might be thinking, “Eric, you're just a real estate agent looking to sell somebody a house.” You wouldn't be wrong, but the truth of the matter is I want you to own real estate because I've never seen anybody leave an apartment or a rental and walk away with a paycheck. You’ll get nothing more than your actual deposit. However, I have made money owning real estate.

Becoming A Homeowner

I've helped a lot of people buy and sell homes, and I've watched them make money owning real estate. For first-time homebuyers, it's always been really hard to get that first house. Once you own one, you want to always own one. You’ll want to move up into that next house or move across town to the house by the school zone you want to be in.

Owning a house is smart because homes appreciate. Your mortgage gets fixed, and you can take advantage of the market if interest rates go down after you've already bought a house. That happened to me; I bought a house in 2018, and my interest rate was 5.25%. In 2021, I refinanced and got 3.25%, saving $600 a month on my payment.

Now I'm at a point where I could sell my house and make a good amount of money off the equity I've gained. However, I don't want to because interest rates are close to 6%. Honestly, there's not a home out there I would be willing to trade mine for.

I’m Here To Help

If you're not ready to buy a home right now, that should be a goal for you to reach. If you have questions about buying a home, reach out to me or another realtor you trust and put a game plan together to get you on the right track to homeownership.

If you're somebody who's sitting on the sidelines trying to time the market, waiting for prices to come down and interest rates to come down, you might be setting yourself up for some major disappointment and costing yourself a lot of money. So make sure to reach out to me and I’ll be happy to help!

Don’t forget to subscribe to my channel for more real estate tips and information about other areas in East Tennessee. Stay tuned to see what I feature next!

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