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The Cost of Waiting to Buy a House in a Market That Is Experiencing Rapid Property Appreciation

Posted by on Thursday, April 5th, 2018 at 11:23am.


Written by Robert H. Ruth

In last week’s post, I looked at the impact of waiting to buy a house when rates are rising, which is the situation we are experiencing at this point in time. As I explained, thus far in 2018, mortgage rates have risen about .75% to around 4.625% from the prevailing rate in December, which was 3.875%. I also looked at a scenario for first time buyers named John and Mary, who are attempting to purchase a $300,000 home with 10% down. Our analysis was predicated on the following assumptions …

  • John and Mary earn a gross monthly income of $7325. The house they want to buy will require escrows of $ 400 monthly for taxes and homeowners insurance and a 90LTV loan requires PMI at $ 112 monthly.
  • John and Mary’s monthly debts including 2 car loans, credit cards, and student loans are $ 1410
  • This change in rates thus far has not dramatically impacted John and Mary’s plans, but for every .75% increase in rate, John and Mary’s mortgage payment will be about 6.5% higher. As we saw last week, at the present time, they should still be able to qualify for a mortgage if they have pristine credit and funds left over in the bank after closing.
  • However, if rates went up by another .75%, John and Mary may have difficulty qualifying for the financing.

So for this week’s post, I wanted to dive a bit deeper into the ability of these buyers to qualify, but in addition to rising rates, we will look at the impact of increasing property values. Here are the facts about the Real Estate market at this point in time:

  • Home values increased by 6% on average, throughout the USA in 2017, and are forecast to increase another 5-6% in 2018. Below is a chart showing the rate of appreciation in the US over time

  • A severe shortage of available housing inventory, more than any other factor, has fueled the price appreciation we have seen recently, and created a seller’s market.

  • This type of increase has not been seen across all price ranges, but it has definitely occurred in the price range John and Mary are looking in, so if they wait too long to buy a home, they may be hit by a double whammy: rising rates and rising prices.  Let’s see how that may impact them.

  • For this analysis, we will look at the required down payment, monthly mortgage payment, and ability to qualify assuming an additional 6% increase in values on the home John and Mary wish to buy, coupled with another .75 increase in interest rates



Present Scenario

“What If ?” Scenario


March 2018

December 2018

Sales Price

$ 300,000

$ 318,000

10% Down Payment

(     30,000)

(     31,800)

Mortgage Amount

$ 270,000

$ 286,200


30 Year Fixed Rate



P/I payment

$ 1388

$ 1603

Monthly escrows






Mthly Mortgage Pmt.

$  1900

$ 2115

Mthly Debt Payments

+  $ 1410

+ $ 1410

Total Mthly Expenses

$ 3310

$ 3525


Total Mthly Expenses

$ 3310

$ 3525

Divided by GMI

$ 7325

$ 7325

Equals TDI Ratio



  • As you can see from this table, the current market, characterized by rising rates and increasing property values, could be difficult to navigate for buyers, particularly first time buyers if it continues long term.   

  • An increase in listings, particularly in houses priced from $ 350,000 and under, would be very welcome news, as this segment is the foundation of the market.  A substantial increase in listings in this demographic would likely cause values to either stabilize or possibly adjust downward from their present lofty levels.  

  • So the message for buyers right now is that if you can find a home to buy that you can qualify for, even in this seller’s market, now might be the time to buy.  Waiting for rates and prices to come down may not work out for you, because based upon the current market realities, there is no guarantee that either will happen individually, or in tandem.

Robert H. Ruth
Senior Mortgage Banker
NMLS ID: 513243
Direct: 401.789.4441
Mobile: 401.743.4364

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