Q&A: Should I Buy a Home Now or Wait Until 2015?

Reader question: “My husband and I are planning to buy a home in the near future. But we’re not sure about the timing. From a financial standpoint, we could do it anytime really. I’m just wondering about mortgage rates, home prices, and other factors that might change between now and 2015. Maybe you can’t really answer this question, but here it goes anyway: Should we buy a home now or wait until 2015? Do you think rates and property values will rise between now and next year?”

You’re right. I can’t answer that question for you. But I can tell you what I would be thinking, if I were in your situation. Personally, if I were in the market to buy a house, I’d be inclined to do it sooner rather than later. Let me explain why.

The Stages of Home Buying Readiness

Most buyers go through certain stages of readiness along the path to purchasing a home. The first stage is personal readiness. This is when buyers weigh their options and decide if they are, in fact, ready to buy a house — financially, emotionally, and otherwise.

Common questions during the first stage include: Do I make enough money to cover the monthly mortgage payment? Can I afford a down payment? Will I be staying put for a while, or moving again in a few years? Am I ready for the burdens associated with homeownership? Or am I better off renting at this stage in my life?

When a person has completed all of this soul searching and decided in favor of buying, he or she moves into the next stage of readiness. Now the question becomes, should I buy now or wait to see what the market does? This seems to be where you are right now. Should you purchase a home now or wait until 2015? And if you do wait, will you be better or worse off when you finally buy? Let’s peel away the layers…

Buy Now or Wait Until 2015?

In the second stage of readiness, it’s all about market timing and trying to get the best deal on a home. You want to buy when home prices and mortgage rates are relatively low, or at least before they rise any further. The bad news is that the rock-bottom prices and interest rates are behind us. So you would probably need a time machine to get a better deal than what you could get today.

But what about next year? Could you save money by postponing your purchase until 2015? On the pricing side, a lot depends on where you live. Home prices are regional in nature. Some local real estate markets are appreciating rapidly at the moment (like many in California), while other markets are sputtering along with only 1% or 2% annual gains. Others are flat or even declining.

So we have to be careful of making broad generalizations about what “the” U.S. housing market will do in 2015. In reality, there isn’t one national housing market, but hundreds of micro-markets. So you need to find out what’s happening in your neck of the woods, and what is expected to happen over the coming months and years.

Nobody has a crystal ball. But there are plenty of educated guesses out there, and they can help you make a better-informed decision. This will help you decide whether to buy a home now, or wait until 2015.

Will Mortgage Rates Go Up Next Year?

Ask ten economists if mortgage rates will be higher at the end of 2015 than they are right now, and at least nine of them will say yes. Maybe all ten. The general consensus among housing analysts is that rates will rise gradually over the coming months. I wrote about this a couple of weeks ago (see our pack of predictions for 2015).

The lowest rates of all time occurred in 2012. In November of that year, the average rate for a 30-year fixed mortgage (FRM) fell to an incredibly low 3.31%. Don’t expect it to be that low again anytime soon. The current average at the time of publication was 4.23%, and it’s expected to rise further in 2015.

We just came out of a three-month period of unusual rate stability, as you can see in the chart below. You’ll notice the relatively flat line on the right side of the chart, between June and September of this year. Rates changed very little during that period. This week, however, the 30-year average rose 11 basis points (0.11%) from 4.12% to 4.23%.

Mortgage rate chart, September 2014

Bottom line: Most economists expect to see a gradual rise in rates between now and the end of 2015, with the 30-year average ending the year somewhere between 5.5% and 6.0%.

Just keep in mind that loan pricing can fluctuate quite a bit from one week to the next, even though the general trend might be upward or downward. In the chart above, you’ll notice that rates are currently lower than this time last year. But they also spiked at the start of 2014. So there are “micro-trends” and fluctuations, even though the annual trend might be up or down.

As a home buyer, you can’t really “time the market” from one week or month to the next. The best you can do is study the annual forecasts for lending rates and local home prices, and make an informed decision based on that.

What About U.S. Home Prices?

When deciding whether to buy a house now or in 2015, you must also consider local pricing trends. “Local” is the key word there. House values in most U.S. cities have risen over the last year, and will likely continue to rise over the coming months. But there are still pockets of depreciation here and there.

As I wrote earlier this month, economists have predicted a general “cool-down” in property values. They expect them to keep rising through 2015, but not as much as they rose over the last year or so. But we’re talking about the national trend here. Things get much more diverse, and less predictable, when you drill down to the city and metro level.

If current market conditions and trends are any indication, home prices will likely rise most in California and the Southwest over the coming months. More moderate gains can be expected throughout much of the country. Some cities in New England and the Midwest could actually see declining values through this time next year. The interest rate forecasts mentioned above more or less apply to the entire country. But price projections are local in nature. They vary from one housing market to the next.

So, should you buy a home now or in 2015? This is an individualized question that cannot be answered across the board. But based on the general consensus among housing analysts and economists, it seems the postponing a purchase until later in 2015 could be costly. You may end up paying a higher mortgage rate, as well as a higher price for your home. But again, the latter will depend on your local housing market. So be sure to do plenty of market research at the local level.

Disclaimers: This story makes forward-looking statements about U.S. housing conditions and mortgage trends through 2015. Such statements are matters of opinion and should not be viewed as facts. We make no claims, guarantees or assertions about future economic conditions or trends. This article is provided as a general reference only and does not constitute financial advice.