If you find yourself in a quandary over whether to jump into buying a home now or waiting for a clearer signal that the time is right, there is one method you can use to inject some hard numbers into your decision. It’s called the CTW.
CTW stands for “Cost to Wait.” It attempts to approximate the money saved or lost if buying a home today is postponed until a later date. The most reliable CTW calculations are based on what have proved to be the most accurate projections. For this example, we rely on quasi-governmental mortgage guarantor Freddie Mac for interest rates and CoreLogic for home pricing data projections.
Since projections are most accurate in the nearest term, the best example will be a simple one-year CTW. This one seeks to calculate the difference between buying a home in St. Cloud right now versus the same time next year.
Freddie Mac projects that from December’s annualized average PMMS (Primary Mortgage Market Survey) rate of 3.99%, a year later that rate is projected to rise to 4.5%. As for typical U.S. home prices, CoreLogic’s most recent projection is a 4.7% annual increase—similar to the past few years.
Let’s take for our St. Cloud example the Census Bureau’s U.S. new home sale price—December’s median was $335,400. At that price, assuming a 10% down payment, its 30-year mortgage at December’s rate resulted in a monthly payment of $1,439. If the assumptions prove true, by next January, the cash required for the 10% down payment will have increased by over $14,000—and the monthly mortgage payment would now equal $1,601(a monthly Cost To Wait of $162 per month).
Although that CTW may seem manageable, standing back to take the long view is a different story. For instance, by the time the mortgage has been fully paid, the entire CTW comes to more than $72,000—and that’s just for holding off for 12 months. Imagine what the CTW would be for waiting several years…or for a decade!
Although nobody can say for certain what the future will bring, it’s also true that over the long haul it’s likely that residential real estate will continue to do what it’s tended to do since time immemorial: grow more valuable. Especially given today’s still-historically low mortgage interest rates, the upshot is that buying the St. Cloud home of your dreams could very well be at its most economical right now.
I hope you’ll give me a call to see all the great buys currently available in St. Cloud. As the CTW measure illustrates so well—why wait until spring?
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