Competition is Fierce for Home Buyers, But Acting Quickly Could Save Them Hundreds on Their Monthly Payments

This new Zillow analysis shows how the expectation of quickly growing home values and the potential for rising interest rates mean those who don't delay will have more buying power.

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Zillow

Feb 03, 2021, 06:00 ET

SEATTLE, Feb. 3, 2021 /PRNewswire/ -- With mortgage rates at historic lows and homes flying off the market in record time, many prospective home buyers may be contemplating whether to buy now or wait until the frenzy slows down a bit. But the market is poised to stay red hot for some time, and a new Zillow analysis shows how waiting might add hundreds of dollars to a monthly mortgage payment.

Zillow experts predict 2021 to be an incredibly strong year for housing, forecasting 21.9% more sales than last year — the most in nearly four decades — and home values to rise 10.5% by December 2021.

Zillow logo (PRNewsfoto/Zillow Group)

That growth stems from a unique combination of market conditions, including extremely low interest rates, a wave of millennials who are aging into peak home buying years, and people re-evaluating their housing needs in light of COVID-19 and newfound freedom to work remotely. The increased adoption of tech tools that speeds up searching and purchasing also contributes to the incredibly c ompetitive market.

All of that might seem overwhelming for a buyer trying to compete for a new home, but this analysis shows why -- for someone ready to buy now -- it makes more sense to prepare smartly and dive in soon rather than wait and hope the market slows. The keys are the combination of home value growth and expected rising mortgage rates.

Today's average mortgage rate^¹ is 2.68% for a 30-year fixed loan. Assuming that rate and a 20% down payment, the typical home in the U.S. would cost a buyer about $861 a month, plus taxes and insurance. But if home values rise 8% and interest rates climb to 3%, the monthly cost of that same house would be $969 a month. At 12% home value growth, the monthly payment jumps to $1,005. And if mortgage rates reach 3.5%, the costs grow even more. In more expensive markets, the difference is hundreds of dollars each month.

"The best time to buy a home should always be when it's the right time for your family. However, home shoppers would be wise to gather as much information as possible and use it to make smart decisions that maximize their buying power," said Zillow home trends expert Amanda Pendleton. "For someone ready to buy, jumping in sooner rather than later could mean a savings of hundreds of dollars a month. Or, more likely, it could mean having to make fewer tradeoffs to stay within budget."

Zillow has tools like mortgage and refinance calculators that help buyers and homeowners estimate their monthly mortgage payments and understand how much home value growth and rates can impact buying power even in the short term. Those and a variety of other resources allow buyers and current homeowners to easily shop and compare the best mortgage options available to meet their unique needs.

The Cost to Refinancing Now Versus Later

For the same reasons, homeowners should consider refinancing soon, as well. A homeowner refinancing a typical U.S. home would pay $861 a month after refinancing at today's average rate. If rates climb to 3%, it will cost an extra $36 a month. If rates jump to 3.5% or 3.75%, monthly payments would increase to $956 and $986 respectively. And in more expensive coastal markets, the savings easily reaches hundreds of dollars a month.

"Rates are near historic lows, and we expect rates to hover near current levels through the first quarter of 2021. Although we expect rates to slightly increase as the economy recovers from Covid-19, it remains to be seen when that recovery truly gains traction. While these rate fluctuations may seem like small changes, when homeowners do the math it is clear how lower rates can significantly reduce monthly payments for the life of the mortgage," said Zillow senior economist Chris Glynn. "Like with any consumer decision, it is important to be informed, research the market and shop around to find the best deal possible. Qualified mortgage professionals can help individual consumers identify the loan rate, repayment term, and structure that meet their needs."

Monthly Mortgage Payment Scenarios
Metro Area*	Current Rate (2.68%) & home value	3% Interest Rate & 8% home value a ppreciation	3% Interest Rate & 12% home value appreciation	3.5% Interest Rate & 8% home value appreciation	3.5% Interest Rate & 12% home value appreciation
United States	$861	$969	$1,005	$1,032	$1,071
New York, NY	$1,660	$1,868	$1,938	$1,990	$2,064
Los Angeles, CA	$2,395	$2,695	$2,795	$2,871	$2,977
Chicago, IL	$836	$941	$976	$1,002	$1,040
Dallas-Fort Worth, TX	$876	$986	$1,023	$1,050	$1,089
Philadelphia, PA	$890	$1,002	$1,039	$1,068	$1,107
Houston, TX	$740	$833	$864	$888	$921
Washington, DC	$1,527	$1,719	$1,783	$1,831	$1,899
Miami-Fort Lauderdale, FL	$1,034	$1,164	$1,207	$1,240	$1,286
Atlanta, GA	$847	$953	$988	$1,015	$1,053
Boston, MA	$1,735	$1,952	$2,025	$2,080	$2,157
San Francisco, CA	$3,779	$4,253	$4,411	$4,530	$4,698
Detroit, MI	$638	$718	$744	$765	$793
Riverside, CA	$1,385	$1,559	$1,616	$1,660	$1,721
Phoenix, AZ	$1,063	$1,196	$1,240	$1,274	$1,321
Seattle, WA	$1,897	$2,135	$2,214	$2,274	$2,358
Minneapolis- St. Paul, MN	$1,023	$1,152	$1,194	$1,227	$1,272
San Diego, CA	$2,196	$2,472	$2,564	$2,633	$2,731
St. Louis, MO	$632	$712	$738	$758	$786
Tampa, FL	$821	$924	$958	$984	$1,020
Baltimore, MD	$1,025	$1,154	$1,197	$1,229	$1,275
Denver, CO	$1,558	$1,754	$1,819	$1,868	$1,937
Pittsburgh, PA	$569	$641	$664	$682	$708
Portland, OR	$1,466	$1,651	$1,712	$1,758	$1,823
Charlotte, NC	$845	$951	$986	$1,013	$1,050
Sacramento, CA	$1,537	$1,730	$1,795	$1,843	$1,911
San Antonio, TX	$712	$801	$831	$853	$885
Orlando, FL	$884	$995	$1,032	$1,060	$1,099
Cincinnati, OH	$667	$750	$778	$799	$829
Cleveland, OH	$562	$633	$656	$674	$699
Kansas City, MO	$728	$819	$849	$872	$905
Las Vegas, NV	$1,015	$1,142	$1,184	$1,216	$1,261
Columbus, OH	$748	$842	$873	$896	$930
Indianapolis, IN	$655	$737	$764	$785	$814
San Jose, CA	$4,167	$4,691	$4,864	$4,996	$5,181
Austin, TX	$1,225	$1,379	$1,430	$1,468	$1,523
Virginia Beach, VA	$846	$953	$988	$1,015	$1,052
Nashville, TN	$973	$1,095	$1,135	$1,166	$1,209
Providence, RI	$1,144	$1,288	$1,335	$1,372	$1,422
Milwaukee, WI	$703	$791	$820	$843	$874
Jacksonville, FL	$805	$906	$940	$965	$1,001
Memphis, TN	$555	$625	$648	$665	$690
Oklahoma City, OK	$547	$615	$638	$655	$679
Louisville, KY	$635	$715	$742	$762	$790
Hartford, CT	$837	$942	$977	$1,003	$1,040
Richmond, VA	$861	$970	$1,005	$1,033	$1,071
New Orleans, LA	$718	$808	$838	$860	$892
Buffalo, NY	$624	$702	$728	$748	$775
Raleigh, NC	$983	$1,106	$1,147	$1,178	$1,222
Birmingham, AL	$604	$679	$705	$724	$750
Salt Lake City, UT	$1,386	$1,560	$1,618	$1,662	$1,723
*Table ordered by market size

About Zillow Group
Zillow Group, Inc. (NASDAQ: Z and ZG) is reimagining real estate to make it easier to unlock life's next chapter.

As the most-visited real estate website in the U.S., Zillow® and its affiliates offer customers an on-demand experience for selling, buying, renting or financing with transparency and nearly seamless end-to-end service. Zillow Offers® buys and sells homes directly in dozens of markets across the country, allowing sellers control over their timeline. Zillow Home Loans™, our affiliate lender, provides our customers with an easy option to get pre-approved and secure financing for their next home purchase. Zillow recently launched Zillow Homes, Inc., a licensed brokerage entity, to streamline Zillow Offers transactions.

Zillow Group's affiliates and subsidiaries include Zillow®, Zillow Offers®, Zillow Premier Agent®, Zillow Home Loans™, Zillow Closing Services™, Zillow Homes, Inc., Trulia®, Out East®, StreetEasy® and HotPads®. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org).

^¹ As of December 2020

SOURCE Zillow