Delaying or forgoing a home purchase in today's market could prove costly, even for those living in high-costs places like California. With interest rates and home prices expected to climb in the next year, potential buyers who choose to remain in the sidelines for even a year could be losing thousands of dollars in financial benefits over a 30-year time horizon, according to new data.
The Opportunity Cost Report recently released by realtor.com® found that nationally, the estimated wealth an average buyer would accumulate over a 30-year period based on today's dollars totals $217,726. If buyers wait a year, it could cost them as much as $18,672 in lost financial benefits over 30 years. Delaying homeownership for three years could mean a long-term financial penalty of $54,879. The report takes into account the loss of potential mortgage interest rate deductions for homeowners, projected price appreciation, escalating rents and higher mortgage rates.
"Current market conditions give buyers the opportunity to build substantial wealth in the long-term, compared with renters and later buyers, in advance of the projected increase in mortgage rates and continuing price appreciation," explained Jonathan Smoke, chief economist for realtor.com®.
Ten markets, most of which are located in California and other western states, offer an especially considerable upside to owning, with estimated 30-year financial gains above $500,000, and opportunity costs of waiting three years as high as $200,000. The report states while these metropolitan areas are relatively expensive markets with strong housing demand and limited supply, the potential long-term wealth in these areas is the greatest nationwide, and the long-term financial penalty for delaying ownership is substantial.
In California, waiting a year to buy a home could mean a long-term loss of up to $65,000 in financial benefits and between $100,000 to over $200,000 if postponing a home purchase extends to three years, depending on the area. Those buying in Santa Cruz could realize a 30-year financial benefit of up to $1 million if they bought a home in today's market, while buyers in Santa Rosa could realize a 30-year total financial benefit of $883,000 if they bought a home there today.
In the San Jose-Sunnyvale-Santa Clara MSA, buyers will come out ahead of lifelong renters by as much as $782,000 over 30 years. If buyers postpone their home purchase a year, they could miss out on gains of over $61,000 over 30 years; waiting three years could mean a loss of over $191,000.
Chris Isaacson, president of the Silicon Valley Association of REALTORS®, says the report is a financial analysis based on assumptions about rising mortgage rates and changes in home values. "Lifetime renters face the biggest opportunity costs because they are losing out on the long-term financial benefits of owning a home," said Isaacson. "Homeownership builds wealth over time, but buying a home is a very personal decision. In addition to the financial aspect, there are other major factors that have a significant impact on homeownership, like job security and the personal situation of buyers. It's a challenge for first-time home buyers to buy a home in today's market because of the shortage of homes for sale."
The Opportunity Cost Report analyzed 382 largest markets in the nation using data on current median existing home prices, rents, local mortgage rates and estimates of property tax and insurance rates, and factored in maintenance costs, costs of selling, and forecasts for mortgage rates, home prices and rents over a 30-year time horizon.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.