The Difference Between Home "Cost" and "Price"

Big Dollars in Your Pocket

So frequently we speak to home owners and home buyers that do not make a distinction so critically important in real estate, and that is the distinction between home cost and home price.

On surface level, it may appear that these terms are one and the same - that "price" is a direct indication of the "cost". However, it is a bit more complicated than that, and understanding the difference will help you in your own real estate journey.

Buyers vs. Sellers

Buyers and sellers look at the dilemma of cost vs. price in different ways.

A seller is primarily concerned with what we call short term price - where home prices will be headed over the next 6 months.

A buyer, on the other hand, is primarily concerned with long term cost - what the home will actually take out of pocket when they acquire it.

Short term price and long term cost, in action and differing interest between the two parties, are very different things.

Lets look at this differentiation statistically. When it comes to short term price, the KCM blog recently reported that home values are anticipated to appreciate by 4% from now until the end of 2015. For long term cost, which is largely determined by mortgage rates, Freddie Mac’s most recent Economic Commentary & Projections Table predicts that the 30 year fixed mortgage rate will be 5.0% by the end of next year.

Appreciation of Short Term Price + Appreciation of Mortgage Rates = Projected Long Term Cost for Buyer

Here's a visual example of what this will look like for a buyer, based on a home worth $250,000 today, and using the estimate increases in home value and mortgage rates.

In Short?

Based on projections, long term cost of a home will increase if you are to wait. Sellers will be increasing their cost based on the short term price projections that the market has. In order to make the best investment with your money, time is of the essence.

What do these statistics mean for you? Don't hesitate to send us an email or give us a call! We'd be happy to help.

Real Group Real Estate

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