If you’re on the hunt for a home, waiting for mortgage rates to decrease may be tempting, but keep in mind it’s impossible to know when they might do just that.
Mortgage rates have seen significant increases since the start of 2019, prompting many would-be buyers to wonder whether it is worthwhile waiting until rates decrease before making their decisions.
Waiting for rates to drop can be a risky move
Mortgage rates are unpredictable, yet unlikely to decrease substantially anytime soon. Waiting may actually cost more in the long run.
Mortgage rates depend on many economic factors, such as inflation, Federal Reserve interest rate fluctuations and yield on 10-year bonds. Although their movements cannot be predicted with absolute precision, you can prepare yourself for potential increases by improving your credit score and saving extra for down payments.
Still, if you are financially prepared to become a homeowner, mortgage rates shouldn’t deter your shopping around. After all, refinancing later if rates do decrease can save money in the end and purchasing now will prevent delays when interest rates do eventually decline.
It can lead to higher home prices
Many prospective homebuyers face the difficult decision of whether or not to buy now or wait for mortgage rates to decrease before making their purchase decision. Although delaying might seem wise at first, it could turn out to be costly in the end. Here are a few reasons why delaying may not be wiser:
As inflation remains at record levels, mortgage rates have steadily been increasing since early 2016 as part of an attempt by the Federal Reserve to control it. They now exceed what they were just one year ago and look set to remain high for an extended period.
As mortgage rates decline, buyer demand often increases and can lead to higher home prices – an effect which could offset any savings from having a lower interest rate.
As it’s out of your hands to predict when mortgage rates will decline, your best strategy should be taking steps to improve your financial position and qualifying for a loan when the time is right – this way, waiting until rates go down may leave you in worse financial shape than ever!
It can lead to a slow market
Mortgage rates and buyer demand are tightly linked in the housing market. Higher mortgage rates reduce buyers’ borrowing power and lead to decreased demand – eventually slowing the market overall. Many potential homebuyers hope for lower mortgage rates so as to boost their purchasing power and find affordable homes to purchase.
However, this strategy may backfire: as mortgage rates drop and more potential buyers emerge to compete for homes at increased home prices and create increased competition among sellers. Furthermore, should interest rates rise over time as you delay making a purchase decision and pay higher mortgage costs, any savings in terms of purchasing price might quickly disappear into higher mortgage costs and offset any savings achieved via negotiation of price itself.
Before embarking on house-hunting, it’s best to ensure you are financially ready. While no one can predict exactly what mortgage rates will do in the future, you can take steps now to improve your credit score and become a homeowner before rates skyrocket.
It can lead to more competition
Mortgage rates have an immense effect on the housing market, shaping buyer demand and pricing dynamics. Predicting future rates can be difficult; waiting for rates to decline could result in an oversaturated market with multiple buyers competing for available properties; bidding wars may ensue, forcing up home prices even further and further complicating home purchasing processes for potential homeowners.
Mortgage rate reductions typically lead to many prospective homebuyers returning to the market and increasing competition and driving up home prices – nullifying the financial benefits of lower rates.
Overall, postponing home purchases in hopes that mortgage rates will decline isn’t wise. Instead, prospective homebuyers should focus on improving their credit score and saving more, which will position them to qualify for mortgages at any rate – this way if their ideal home comes along quickly they’ll be ready to act immediately on it!