A lot of buyers today are asking, “When is the best time to buy a home in Phoenix?” It seems like we have been saying this for the past year but, given today’s economic environment, the answer could very well be “Now!”
With the value of the US Dollar dropping and the likelihood that the Federal Reserve will roll back its programs that help the economy, it is highly unlikely that interest rates will remain this low for very long. In just the past week, we have seen the par interest rates go from 3.5 to 4.0%! Some analysts are calling for rates to move much higher. Many cite the fact that the 10-year bond, a financial instrument which indicates future interest rate movements, has been steadily increasing since its yearly low last July.
What does this mean for the Phoenix home buyer?
Interest rates determine the amount of interest that you pay on the money you borrow for your home’s mortgage. An increase in rates can dramatically change your monthly budget. For example, let us look at Buyer 1, who buys a home using a $200,000 mortgage at 3.5% and Buyer 2, who gets the same $200,000 mortgage at 5%. Buyer 1 would pay approximately $898 per month in principal and interest over the life of the 30-year loan. Buyer 2 would pay $1,073 per month in principle and interest for the same home. The difference in these examples would be $175 per month, or $2,100 per year. Over the life of the mortgage, Buyer 1 would save $63,000!
The Appreciation Of The Phoenix Real Estate Market
Now let us take into consideration the appreciation of the real estate market. We all are painfully aware that constant appreciation is not guaranteed, however, it is likely that the market will continue to appreciate during the next year if all economic conditions remain the same. In the simplest of examples, let us say that Buyer 1 purchases the median-price home today at 3.5% and Buyer 2 purchases the same home one year from now at 5%, assuming an annual appreciation of 15% (the median home price in Maricopa County in Feb 2011 was $125,000, compared to $180,000 in Feb 2013, a 44% increase over two years).
The difference between buying now and a year from now would look like this:
Buyer 1: $180,000 mortgage at 3.5% interest rate for 30 years: $808.28 per month
Buyer 2: $207,000 mortgage at 5% interest rate for 30 years: $1,111.22 per month
Today’s homebuyer, Buyer 1, would save $302 per month, which equals $3,624 per year, or $108,720 over the life of their 30-year loan! What would you spend that money on? Your kid’s college education, a nice vacation every year, your early retirement???
While we may have missed the best time ever to buy a home in Phoenix, the example above demonstrates how the best time to buy in the foreseeable future might be RIGHT NOW! The only question remaining is, “What are you waiting for?”
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Arizona is a beautiful state with endless offerings for people in all walks of life. If you have questions regarding topics covered within this blog post or otherwise please contact Zac directly, he’d be happy to get your questions answered, Call 866-749-7356.
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