Timing is an important factor in buying a house. You may be financially ready, but still unsure if you should delay. If you’re asking yourself, “should I wait to buy a house?” the best strategy is to look at the hard numbers.
The Costs of Waiting
Buying a home costs money, but so does waiting. If you wait to buy a house, you’ll be paying rent and foregoing the financial and wealth-building benefits of owning. These benefits include:
Home Appreciation
Home prices historically go up 3% to 5% annually, with some markets appreciating significantly more.
Here’s an extreme example using real figures from Austin, Texas:
- 2020 median home price: $385,000.
- 2024 median home price: $565,000.
If you waited to buy a house from 2020 to 2024:
- The same house now costs $180,000 more.
- You paid approximately $100,000 in rent over 4 years.
- Your total cost of waiting is $180,000 + $100,000, or $280,000.
Building Equity
When you buy, every mortgage payment you make builds your home equity. Your equity also grows through appreciation. If you wait to buy a house, you’re losing out on that equity-building opportunity.
Here’s an example of how much equity you gain through mortgage payments and appreciation in your first year.
- Home purchase price: $350,000.
- 20% down payment: $70,000.
- Loan amount at 7%: $280,000.
- Monthly payment: $1,863.
- Principal paid in year 1: ~ $3400.
- Equity from appreciation at 4%: $14,000.
- Total equity gained in year 1: $17,400.
If you waited to buy a house, you’d continue to pay rent. At $2100/month, you’d pay $25,200 in rent over the course of the year, and you’d miss out on $17,400 in equity building.
Foregone Tax Credits
When you buy a home, you can deduct mortgage interest and property taxes from your income. This lowers your taxable income, thereby reducing your actual housing costs. If you wait to buy a house, opting to rent instead, you don’t get this tax benefit.
Opportunity Cost of Your Down Payment
If you’re already saving for a down payment, that money is earning interest for you in an investment vehicle. For that to make sense financially, the investment has to be paying more than home prices are rising. Otherwise, waiting to buy a house is actually costing you.
For example, if your investment account is paying you 4% annually, but home prices are rising 6%, you’re missing out on that value appreciation. Your money could be working harder for you if you invest it in a home rather than in a term deposit.
Is It Better to Buy Now or Wait to Buy a House: Running the Numbers
The best way to figure out whether you should wait to buy a house is to look at actual scenarios with hard numbers.
Scenario 1: Buy Now or Wait for Rates to Drop
In this scenario, mortgage rates are at 6.75% but are expected to drop. In 18 months, they drop to 5.75%. Let’s assume that your rent is $2,100/month.
| Waiting For Rates to Drop While Renting | ||
| Buy Now | Wait One Year | |
| Home price | $400,000 | $420,000 |
| 10% down payment | $40,000 | $42,000 |
| Loan amount | $360,000 | $378,000 |
| Interest rate | 6.75% | 5.75% |
| Monthly mortgage payment | $2,335 | $2,205 |
| Monthly payment difference | $130 less | |
| Rent payments | $0.00 | $25,200 |
| Total interest over 30 years | $480,000 | $415,000 |
In this scenario, your monthly mortgage payments are $130 lower, but you pay $25,200 in rent while waiting for rates to go down. It would take approximately 16 years’ worth of lower payments to recoup what you paid in rent.
If you wait to buy the house, you’re also missing out on $20,000 in appreciation, paying $20,000 more for the home, and you’re missing out on the equity you could have built.
Scenario 2: Buy Now or Wait for Prices to Drop
If you’re anticipating a price drop, you might wait to buy a house until that happens. Here’s how that might look with actual numbers:
| Waiting For Prices to Drop | ||
| Buy Now | Wait One Year | |
| Home price | $400,000 | $380,000 (5% reduction) |
| 10% down payment | $40,000 | $38,000 |
| Loan amount | $360,000 | $342,000 |
| Interest rate | 6.75% | 6.75% |
| Monthly mortgage | $2,335 | $2,220 |
| Monthly payment difference | $115.00 | |
| Rent paid while waiting | $0.00 | $25,200 |
| Total interest over 30 years | $480,000 | $435,000 |
| Purchase price savings | $20,000 | |
In this scenario, your monthly mortgage payments are $115 less, but the $25,200 in rent would take you approximately 18 years of those lower payments to recoup. The downside of waiting to buy a house under these circumstances is that prices might not actually go down. If they go up, and interest rates stay the same, you’ll wind up paying more for your mortgage, and more interest over the course of the loan.
Scenario 3: Buy Now and Refinance Later
Buying now at a higher rate of interest and refinancing when interest rates drop is another option, but with most loan types, you will need to pay closing costs again when you refinance. These costs need to be included in your calculations.
| Buy Now, Refinance Later | ||
| Buy Now | After Refinance | |
| Home price | $400,000 | |
| Loan balance | $360,000 | $350,000 |
| Interest rate | 6.75% | 5.75% |
| Monthly mortgage payment | $2335 | $2,040 dollars |
| Monthly savings | $295 less | |
| Refinance cost | $6,000 – $8,000 | |
| Break-even time on refinance | Two years | |
In this scenario, you save money on the refinance, but you will need two years of savings to recover the refinancing cost. You’d have to stay in the home for at least that long for this strategy to pay off. After the two years, however, it’s all savings.
When You Should Wait to Buy a House
Waiting isn’t always a bad choice. In these scenarios, delaying your home purchase might be smarter:
- You’re not financially ready: your credit score is below 620, you don’t have an emergency fund, you haven’t been in your job for very long, or you don’t have enough saved for a down payment.
- You’re definitely moving within two to three years: you need that long to build up enough equity to cover closing and moving costs.
- Your market is in a housing bubble: prices are rising 15% to 20%, every property gets multiple offers, there is overbuilding everywhere, and luxury properties are not selling.
- You have concrete evidence that interest rates will drop soon, and your market has high inventory.
- You’re undergoing major life uncertainty: don’t buy if you have a divorce pending, serious health issues, an upcoming career change, or other life transitions. Wait to buy until there’s more stability in your life.
The right time to buy isn’t when rates bottom out, or prices decrease; It’s when you’re financially ready, planning to stay put for five years or more, and you have sufficient stability in your life and job. When you’re ready, choose an experienced real estate agent who is intimately familiar with the local market. That way, you’ll get the best advice and assistance as you go through the homebuying process.
