Cost of waiting to buy a home

As I’ve told many people the stars are currently aligned for first-time home-buyers.  Grant it, there is a lot of uncertainty and anxiety amongst US workers right now and if the potential for job loss is high it would NOT be a good plan to buy a home.

However, for those who feel secure in their jobs and have been waiting for prices to fall it is a good idea to start getting serious.  After all, mortgage rates for loans requiring only 3% down remain very attractive and I believe homes in Portland have become much more affordable over the past few months.

But if that isn’t enough to convince you consider the cost of waiting.  I actually got this example from a book I recently read entitled “Borrow Smart Retire Rich”.

The table below illustrates the savings an individual will make over a 4 year period assuming they can save $4,000 per year   We’ll assume that their savings earns 8% annually:

Year Value Change
0 $ 4,000.00 n/a
1 $ 8,320.00 $ 320.00
2 $ 12,985.60 $ 985.00
3 $ 18,024.45 $ 2,024.00
4 $ 23,466.40 $ 3,466.00

Conversely, here is a table that illustrates the cost of waiting. Here’s how much a $200,000 home will appreciate over the next 4 years assuming a 4% appreciation rate:

Year Value Change
0 $ 200,000.00 n/a
1 $ 208,000.00 $ 8,000.00
2 $ 216,320.00 $ 16,320.00
3 $ 224,972.80 $ 24,972.00
4 $ 233,971.71 $ 33,971.00

As you can see over a 4 year period even though the individual was able to save $23,466 towards a down payment the home that they could have purchased 4 years ago has now appreciated in value by $33,971.  Therefore, this individual has actually lost $10,000 in waiting this long to buy a home.