Delay in home purchase may cost you

A young couple with a small child has been socking money away each month for a down payment on a new home. They need more space for their growing family, but they're not sure this is the right time to buy the home they want. They're on the fence.

Suburban builders say this is good time to jump off the fence and into the marketplace. Why? Interest rates are low. Home prices and interest rates are expected to climb through this year. The inventory of homes for sale remains low.

Interest rates

Interest rates are low, but they will not stay this low, said Anna Shodeen, sales and marketing director for Shodeen Homes. "The rates are going to change, and they could reach 6 percent before the end of the year."

Many experts predict the interest rate for a 30-year fixed mortgage will exceed 5 percent by the end of 2018. Locking in a lower interest rate on a mortgage now will save a buyer tens of thousands of dollars during the period of the loan, which means that securing a loan now is in the buyer's best interest.

Jay Dulla, executive vice president of Meritus Homes, agrees. "Interest rates still at (near) historic lows is reason enough to purchase a new home now."

M/I Homes also believes waiting is not in a buyer's best interest.

"Our market is strong and interest rates are on the rise," said Cheryl Bonk, director of sales and marketing for the builder. "Taking advantage of the buying power as it is today is a benefit to anyone considering a new home purchase."

For many people, purchasing a home is all about affordability. If people wait until interest rates go higher, homes will be less affordable, and monthly payments may become out of reach. That means people will need to buy a smaller or less expensive home than they had planned, said Kim Meier, president of KLM Builders.

Pat Curran, president of West Point Builders, says that even if people wait 24 months, they might need to choose another home than one they can afford now.

Prices climbing

Homes are getting more expensive by the day, and prices will only continue to go up, Shodeen predicted.

Price inflation as the economy improves, and higher demand because of a shortage of resale homes, are factors pushing up the cost of homes.

"During my 35 years in the business, I've seen that when the economy gets better, home prices increase," said Jeff Pelock, president of North Mark Homes, a division of Revco Ventures Inc.

Often prospective buyers don't think about factors that contribute to the rising cost of new homes. Builders spend a lot of money on construction materials, and they're dependent on prices set by suppliers, said Christy Whelan, sales director for Airhart Construction.

When lumber prices go up, or a window supplier calls on Monday with a price increase, it costs the builder more to build a new home. The price of materials is affected by the weather, too.

When hurricanes in Texas or wildfires in California suddenly destroy a lot of homes, there's a huge demand for lumber. And construction resources usually go to places where there's an immediate need. Builders in the Midwest can get lumber, but they will pay more for it. And when the builder has to pay more for materials, homebuyers will pay more, Whelan said.

The high cost of land and lack of buildable space in the suburbs also impacts the cost of new homes. Say a couple wants to live in their hometown of Elmhurst, which is landlocked. Sometimes there are scattered lots available, but they get snapped up quickly. People can't wait to buy a home and expect to build in an area that's already saturated.

Also, as builders face increasing labor, material and land costs, it makes it difficult to build at a price point attractive to entry-level buyers.

For seniors who want to downsize but they have put off the decision for a while, it's often best if they procrastinate no further, builders say. For example, if an older person is still able to get around in a two-story home, it's often easier to move now while they can handle a move than waiting until they have medical issues, such as knee surgery, that can complicate things. A move is stressful and a lot of work, and if people wait until they're too frail, it can be very difficult, Whelan said.

"We have people who have moved into a maintenance-free ranch community, and when one spouse passed away, the other was already situated in a safe, maintenance-free community."

Low inventory

One of the factors in rising home costs is low inventory. When there are too many people who want to buy homes and not enough homes for them to buy, it drives up prices and competition in the market.

Prospective buyers should make a move now because it's expected that the low supply of houses will continue to drive housing prices up and make homeownership less affordable. With the robust demand driven by the strong economy and low unemployment, economists expect supply to remain tight this year.

With more people in a position to purchase a home a fewer to choose from, competition will also be strong.

A six-month supply is considered a healthy balance between supply and demand. With very low inventory for real estate brokers to sell, they look to builders to fill the void, Pelock said.

For those who need to sell their home before purchasing a new one, this is the best time of year to get your home on the market. Inventories are low - so days on the market are fewer and owners receive more for the sale of their homes, said Andy Konovodoff, president of K. Hovnanian Homes.

The shortage of homes for sale is concentrated at the lower end of the market, and as home prices rise, a larger down payment will be needed. This lack of affordable homes for sale could discourage many first-time buyers who may choose to stay in the rental market longer than planned when the best time to buy is now.