Build Wealth. Move Up Now!

Because mortgage interest rates are rising as are average selling prices, we have continuously encouraged first time buyers to stop renting and get into home ownership. It has proven over decades to be the best way to build wealth.

But for many existing home owners considering selling and moving up, waiting can be  costly. Many current home owners think that if they wait, their current home will be worth more next year and delaying moving up makes good financial sense. It turns out the opposite is true.

Let's examine why that is by looking at what happened last year.

Average selling prices last year were up 11.9% here in greater Lansing. Let's say that a move-up buyer has a home worth $200,000 and was looking at buying a home worth $400,000. By waiting, their current home would be worth $223,800 and they would have additional equity of $23,800. (If they had bought the $400,000 house and put 10% down they would have had a mortgage of $360,000).

Now however, the $400,000 home of their dreams is worth  $447,600. If we add the original 10% down payment amount of $40,000 to the additional equity of $23,800 they gained by waiting they would now have a down payment of $63,800. That means they would need a mortgage of $383,800 versus the $360,000 if they had acted the previous year. Because interest rates rose about a percentage point over the year the monthly payment would now be almost $500.00 more than if they had acted the prior year.

If average selling prices continue to rise albeit at a lesser pace and mortgage interest rate rise, as industry pundits expect, to about 5%, it remains costly to wait to move up.