Will saving for more down payment save you money long term?

new house keys

Are you waiting to receive your new house keys?

In the days of yore, when home prices were very much lower than they are now, especially here in the Portland metro area, it was common practice to save for a 20% down payment before even considering buying a home. But most home prices are no longer in the $100,000 – $150,000 range, so what now? In the Portland metro area, the average home price has risen to $300,000 in just a few years.

Clearly, a 20% down payment will mean that your monthly payments will be based on a lower mortgage and there will be no required PMI (Private mortgage insurance). So, of course, your monthly payments will be lower. But that $300,000 home, adjusted for the current rate of inflation here in Portland, will very likely cost you $321,000 or more, depending on the neighborhood next year. Add to that:

  • Mortgage rates are projected to be higher next year;
  • Your rent will very likely increase over the next year;
  • You will have lost the tax advantages of home ownership this year

You need to ask yourself if your savings plan is keeping up with the rate of inflation and whether or not you will actually be able to afford that $300,000 house next year?

In spite of all that’s going on with the world economies and Wall Street’s crazy ups and downs recently, the Portland housing market remains strong.

Are you actually losing money by waiting?

  1. CoreLogic has recently projected that home values will increase by 4.3% nationwide over the next 12 months. But we already know that Portland has seen higher pricing inflation than national averages for the last 3 years at least? What will 2016 bring?
  2. Portland rents are among the highest in the country because we have a shortage of rental units available. That trend is likely to continue as more people keep immigrating to Portland.
  3. The housing shortage in Portland is very likely to keep sellers in control, so our rate of housing price inflation may continue to rank in the top five in the country.

OK – reality. Housing prices do rise and fall sometimes. We all saw that during the recent recession. But, each time they drop, they seem to rebound to ever higher levels. And in the meantime, IF you purchased a home with only 10% down, your monthly payment was locked in, and you were in your own home.

Low housing inventories are driving housing prices UP in the Portland metro area

You have probably heard that housing inventories are low here in Portland. In fact inventory levels have been less than 2 months (meaning that if no new homes are listed, all listings will be sold off within 60 days) for a few months now. This shortage of inventory is largely responsible for the sellers market we have been experiencing all year. A normal balanced market that favors neither buyers nor sellers has about 6 months inventory. As long as inventories stay low and people keep moving to Portland in such huge numbers every year, it is projected that it could be years before we see another buyers market like the one we experienced in 2010-2012.

Saving for a down payment has been the single biggest obstacle for first time home buyers over the last several years, but for most people, it doesn’t have to be. If you’re not sure how much you could potentially save by purchasing sooner rather than later, call anytime for more information. It never hurts to explore your options.

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