Home ownership is one of the biggest investments you’ll ever make, so many prospective homebuyers choose to put off entering the market until mortgage rates decline.
Waiting for lower mortgage rates could cost more than expected in the long run. Here are a few reasons why waiting could backfire on you.
Waiting for Rates to Go Down
Mortgage rates can be unpredictable; however, forecasters anticipate that after rising sharply through October 2023 and falling gradually throughout the year until they average around 6% by year end.
Redfin reports that when mortgage rates decline, many homebuyers rush into the market at once, creating increased competition and driving up prices. According to Redfin, this may make it hard for prospective homeowners to locate affordable properties within their desired neighborhoods.
Even though mortgage rates may rise this year, they’re expected to decline next year as inflation and the economy continue to ease off. Furthermore, it’s anticipated that the Federal Reserve may reduce their key interest rate further easing mortgage rates.
Waiting for Your Personal Finances to Improve
Many are delaying home purchase due to rising interest rates; however, they should consider how much waiting will ultimately cost them in terms of lost opportunity costs.
Buyers in today’s market have many options available to them to them in order to lower their mortgage rate, including making a larger down payment, improving credit scores, purchasing points or shortening loan terms. It may often be more financially prudent to purchase sooner rather than wait for rates to decline further.
Home prices can also rise while waiting for mortgage rates to go down, leading to an false sense of security and making you reluctant to purchase now. If you are considering purchasing a new home, consulting with a mortgage professional to see how the current market might work for your personal finances and understand available solutions to reduce interest rates is strongly advised.
Waiting for Home Prices to Go Up
Mortgage rates have come down since reaching record highs last October, yet remain close to 7 percent. Home prices have also seen steady appreciation.
Waiting until interest rates or home prices drop could cost you dearly; even one percentage point decrease can add around $200 monthly to a $300,000 mortgage loan, according to CNBC Make It mortgage calculators.
McBride anticipates interest rates to stabilize in 2019, with expectations they’ll drop towards 6% by 2024 if inflation and economic growth moderates. That could draw more home buyers to enter the market.
Redfin data indicates that 89% of homeowners currently enjoy mortgage rates of under 7%, making them unlikely to switch their rates when selling, further tightening up home inventory.
Waiting for the Right Time
Purchase homes when mortgage rates are at their lowest, and save thousands in interest costs. As rates increase, this advantage disappears and leads to greater payments over the life of your loan.
Mortgage rates cannot be predicted with absolute accuracy, nor their rate of decline, yet many experts anticipate a gradual and steady decrease as inflation drops and the economy calms.
Though lower mortgage payments may tempt us, it’s important to keep life in perspective when making your decision about when and whether to purchase. If you meet all requirements, it often makes more financial sense to buy as soon as possible rather than risk waiting for mortgage rates to go further down; especially during an unstable market where it may be hard to predict when rates hit their bottom and miss out on getting the best possible deal on your dream home.