Home prices and mortgage rates can make determining whether or not to buy more challenging, but as inflation has moderated and the Federal Reserve eased its monetary policy, mortgage rates have been declining.
Potential buyers have been left asking: should I wait for lower mortgage rates before purchasing my property?
1. There’s no guarantee they’ll go down
As is well-known, mortgage rates haven’t exactly seen an improvement recently – they’ve actually doubled from where they were just one year ago and many are concerned they might go even higher in coming months.
But they cannot be guaranteed; the Federal Reserve can be unpredictable, and its impact cannot be predicted on mortgage rates.
Mortgage rates are determined largely by what investors are earning on Treasury bonds; but with yields declining and no stimulus coming through the bond market, rates could remain high for some time to come.
Notably, even if mortgage rates do decrease, there’s no guarantee they’ll drop as far as desired – and savings from lower rates won’t cover all additional expenses such as closing costs or increased down payments.
2. It’s risky
Mortgage rates remain historically high right now and experts project that they won’t decrease significantly anytime soon. They might see some decreases over the next year or two, but not significantly so.
Waiting for lower rates could mean missing out on housing options that meet your needs, as well as missing out on savings opportunities. When searching for your first home, even small decreases in rates can make an enormous difference to your ability to afford your dream property.
Mortgage rates fluctuate constantly and it’s impossible to accurately predict when or by how much they will drop. While you have no direct control over them, there are steps you can take now that will put yourself in a stronger position when the time is right to purchase a home – such as shopping around for lenders and negotiating better rates; or taking steps such as locking in an interest rate for an initial period using temporary buydown programs or permanent rate locks.
3. It’s not in your control
Mortgage rates are one of the primary factors determining home affordability, so it should come as no surprise that they have caused consternation among prospective homebuyers. But while waiting for lower interest rates may appear like a good plan, experts caution it could backfire in unexpected ways.
Experts indicate that several steps need to take place for mortgage rates to decrease significantly, starting with the Federal Reserve reducing its benchmark interest rate, followed by slowing economic activity and inflation coming down before rates follow suit and drop significantly. Unfortunately, these events won’t happen overnight so it may take time for rates to change for you; while waiting will increase competition in housing markets and your monthly mortgage payments. That is why it is advisable to secure an affordable rate today if possible.
4. It could drive up home prices
Home ownership can be costly, and mortgage rates can add significantly to this expense. But many prospective homebuyers fail to consider that waiting for lower rates could also result in higher home prices.
Current mortgage interest rates hover at approximately 7% and remain higher than what most buyers would prefer. Most experts expect them to gradually decline throughout 2024; however, it seems unlikely they’ll ever reach below 3%.
But waiting for mortgage rates to drop may cause more buyers to compete against each other for limited inventory, leading to bidding wars and driving up home prices if you wait too long. Mortgage rates shouldn’t be the determining factor behind your homebuying decisions; rather, speak to a professional mortgage advisor who can assess your options and provide insight as to whether waiting for lower rates will actually be worth your while.