Home values have (and will continue to) rise, and the same is true of interest rates. Depending on your price point, buying a home today could save you $100,000 or more vs. waiting until the end of the year. In this video, we will look at how much home values and interest rates are expected to rise in 2022, and we will do some calculations so you can see for yourself how much you stand to profit or lose by purchasing now vs. waiting.
Eric Andersen, B.A., M.Div.
Owner/Designated Managing Broker, Eric Andersen Homes
📲 Text/Call: 708.674.6725
📩 Email: eric@eandersenhomes.com
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My name is Eric and I own an independent real estate brokerage in Chicago, Illinois. I specialize in helping out-of-state newcomers find the perfect home here in Burr Ridge and the western suburbs. When I’m not selling homes, I love spending time with my wife and 6 children, serving my congregations (I’m an ordained Lutheran pastor and serve Zion, Summit & Immanuel, Hodgkins), exercising, and making Neapolitan pizza from scratch and baking it in my Ooni wood-fired oven. Despite being a Chicago native, I’m a St. Louis Blues & Nashville Predators fan. I’m currently reading the biography of Benjamin Franklin by Walter Isaacson.
I have a number of awards and designations, including:
⭐️ Top 3 REALTOR® in Brookfield, IL (2021)
⭐️ 20 under 40, class of 2021 (Mainstreet Organization of REALTORS®)
⭐️ Gold 2020 Top 3% Sales Award (Mainstreet Organization of REALTORS®)
⭐️ Endorsed Local Provider (RamseyTrusted)
⭐️ Best of Zillow
⭐️ Pricing Strategy Advisor (National Association of REALTORS®)
⭐️ Certified Staging Consultant (Mainstreet Organization of REALTORS®)
Transcript:
Unless you’ve been living under a rock, surely you know that the real estate market has absolutely been on fire. And yes, I just called you Shirley. I’m Eric with Eric Andersen Homes, and there has been a lot of discussion about home values in 2022, especially given the massive equity increases we’ve seen throughout the pandemic. Home values and mortgage rates are almost universally expected to continue rising in 2022. Because of this, several buyers who were planning on waiting for the spring or summer to move are pushing up their timelines. I personally have several clients whose lease is ending, say, anytime between April and June. They were planning on starting their home search in the spring or later, but they know that between rising interest rates and the fact that home values are only going up, they will pay more if they wait to make their move. Yes, that may mean breaking a lease or paying a mortgage and rent simultaneously. And while that may hurt in the short-term, it makes a good deal of sense in the long-term. Getting a lower purchase price is a no-brainer, and a lower interest rate could save you tens of thousands of dollars over the life of a loan. For example, a quarter of a point increase in interest on a $500,000 loan would likely cost you around an additional $24,000 in interest over the life of a 30-year loan. And that’s just in interest. As home values continue to increase, you’ll also have a higher upfront cost for your purchase on top of the added interest cost you’ll pay by purchasing at a higher rate. So how much are home values and interest rates expected to rise in 2022? Naturally, there isn’t an exact consensus on this point, and nobody knows the future, but there is agreement that the direction is up. For example, economist Lawrence Yun believes the appreciation rate will return to a more normal level in 2022, likely somewhere around 5%—which is still strong, considering the historical home value appreciation rate, which has been 3.2% per year on average in the United States since 1891. However, Yun’s 5% prediction is conservative. Zillow’s data showed that home values rose by almost 20% in 2021, and they are now forecasting growth at a rate of 16.4% in 2022. But either way, whether the growth is only 5%, as high as 16%, or somewhere in between, the consensus is homes are only going to become more expensive as the year goes on. To go back to our $500,000 home example, that means if Yun is right and homes only increase by 5%, that home will cost you $25,000 more at the end of the year than it does today. And if the value increase by 16.4%, waiting until the end of the year to buy that same home will cost you $82,000 more than if you were to buy it today. But again, that’s only a purchase price increase. If you add the extra $24,000 in interest you’ll pay to that, you’re looking at a total of anywhere between $49,000 and $106,000 more to buy the same home, the only difference being when you bought it. This is why my renter-clients are smart. Yes, purchasing now before their lease ends may cost them a few thousand dollars in the short-term, but it is saving them between fifty and one-hundred thousand dollars when you look at the big picture. In terms of mortgage rates, they have increased as mortgage investors got word that the Fed intends to increase interest rates pretty aggressively. Bankrate expects the rate on a 30-year fixed mortgage to average between 3.65%-3.85% in February, and Yun believes the average rate will be around 3.8% by the end of the year. The pace of the market has been fueled by high demand and low supply, and the chief economist at Brown Harris Stevens said he doesn’t expect this to change anytime soon, as builders can’t build homes fast enough to resolve the supply issue. And, of course, the increase in the cost of materials and labor shortages have made it more difficult for builders, too. As one of my friends who builds homes for a living recently told one of my clients, this is the most expensive time in human history to build a home. I hope you’ve found this video helpful. As always, remember to like this video and subscribe to my channel, and reach out to me anytime if you need help with buying or selling a home in Burr Ridge and the western suburbs of Chicago, or even if you’re just starting to think about it. There’s a lot involved with buying or selling a home, and it’s never too early to start preparing. I’m Eric with Eric Andersen Homes, here to remove the headache from real estate and provide expert guidance for your next purchase or sale.