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.

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 competitive 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 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."

—Zillow