by Lori Martin of Fairway Independent Mortgage Company

As we both know the market is incredibly hot and many properties are selling quickly with multiple offers. I am hearing that clients are considering waiting to purchase a house due to the competitiveness of the market, but what could that cost them and why? Understanding the cost of waiting in today’s market can be broken down into 3 categories: appreciation value, cost of materials and a rising interest rate environment. 

Appreciation Value:

It is no secret that we are seeing home values continue to appreciate. According to Market Insider, Goldman Sachs has upgraded its 2021 house-price appreciation forecast to 6.8% from 4.7% previously. Appreciation rates are being attributed to an inventory shortage. Unlike 2008-2009, this is not being looked at as a bubble with an anticipated pop, but instead a boom that is likely sustained through all of 2021 with a slowdown in 2022.

Cost of Materials:

According to Fitch Ratings, the cost of materials for construction have been rising at an increasing year-over-year rate since August of 2020 and increased 8% in February 2021 alone. The expectation is that this trend is likely to continue as inventory continues to pose an issue and pandemic-driven supply chain issues for building material companies are expected to linger through 2021. Prices for building materials have been rising with additional price increases expected this year.

Given the delays and increasing product cost, it is expected that new construction home prices will continue to remain elevated for the foreseeable future.

Rising Interest Rate Environment:

While interest rates are still incredibly low, we are in a rising interest rate environment. According to HousingWire housing data analyst Logan Mohtashami, the average mortgage interest rate will inch upward in 2021 but is not likely to go above 4% since we’re still in the thick of the COVID-19 pandemic. Increases we may see in mortgage rates hinge on the health of the U.S. economy which is still reacting directly based on feelings of security as it pertains to getting COVID-19 under control.

With interest rates inching upwards and demand and material cost remaining high, the cost of waiting is something to consider for your clients. My advice, clients shouldn’t wait for the market to slow down. We don’t know when that will happen, or what that will look like. Instead, let’s work together to help put clients in the strongest position possible when they put in an offer in and give them the best shot at securing a new home.