It’s been two years since the Federal Reserve first began its tightening cycle with a series of rate hikes, effectively ending the pandemic-era housing boom. Since then, mortgage rates rose past 5%, 6% and 7% as home prices stayed stubbornly high — a combination that brought housing affordability to its lowest levels in decades.
The spring 2024 home-shopping season is upon us, and it brings with it a sense of deja vu: Just like in 2023, two-thirds of respondents who plan on buying a home in 2024 are waiting for rates to fall first, according to the second annual Homebuyer Sentiment Survey from U.S. News.
Between Feb. 28 and March 4, U.S. News ran a nationwide survey of 1,200 Americans who are planning to buy a home in 2024 using a mortgage. We asked respondents a series of questions to find out how the mortgage rate environment has impacted their homebuying plans. Here’s what we found:
— Two-thirds of homebuyers (67%) are waiting for mortgage rates to drop before buying a home this year. Last year, an equal share of buyers said the same thing — but rates didn’t budge. In fact, 67% of this year’s buyers put off purchasing a home in 2023 because they were waiting for rates to fall.
— Among those who are holding out for lower rates, a quarter (26%) want to see them below 5% before buying, which isn’t expected to happen in 2024 or even 2025. About half (49%) are willing to wait for more than six months for rates to come down.
— Three-quarters of current buyers (76%) plan on refinancing to a lower mortgage rate in the future. Additionally, more than a third (36%) are considering borrowing an adjustable-rate mortgage in order to get a lower rate. Both of these strategies come with risks: Those who “buy now, refi later” could be stuck with unaffordable monthly payments while they wait for rates to fall, and those who choose an ARM may be on the hook for higher payments in the future.
— The vast majority of homebuyers (91%) are at least “somewhat” stressed about buying a home this year, with a quarter (25%) saying they’re “extremely” stressed about it. Just a quarter of buyers (26%) say there’s enough for-sale housing inventory within their budget in the market where they’re buying a home.
— Over half of 2024 home shoppers (52%) are planning on buying new construction, including 55% of first-time buyers and 45% of repeat buyers. Among them, 61% say they will use their builder’s preferred lender, which often comes with added incentives like mortgage-rate buydowns and closing-cost credits.
[Read: Best Mortgage Lenders]
Waiting Game: Most Homebuyers Are Still Holding Out for Lower Rates
When we surveyed homebuyers last spring, 66% said they were waiting for mortgage rates to fall before buying a home, but they didn’t catch a break. In fact, the average rate on a 30-year fixed mortgage steadily rose from the mid-6% range last March to nearly 8% by October. Rates have moderated in the months since then, but they’re still hovering just below 7%.
In this year’s survey, 67% of current homebuyers say they put off buying a home in 2023 because they were waiting for mortgage rates to fall. And two-thirds of them, about the same amount as last year, are still waiting for mortgage rates to come down further before buying a home in 2024.
Among those who are waiting for rates to drop, 28% want rates to fall below 6% in order to enter the market, and 31% want to see rates below 5.5%, which isn’t expected to happen this year. About a quarter (26%) plan on waiting until rates drop below 5% to buy a home, but they may need to adjust their expectations — rates aren’t forecast to drop that low in 2024 or 2025.
Still, homebuyers in our survey seem patient enough to wait for rates to come down, at least by a bit. About half (49%) are willing to wait more than six months for rates to fall before buying a home, while 42% can wait between three and six months.
But “wait and see” isn’t the only strategy homebuyers will use to land a lower mortgage rate this year. Over half (52%) plan on shopping around with multiple lenders to compare rates, while 43% are considering a shorter mortgage term, such as a 15-year mortgage rather than a 30-year mortgage. Others are looking at purchasing mortgage discount points to buy down their rate (36%) or choosing an adjustable-rate mortgage that has a lower initial rate (36%).
Additionally, 76% of buyers plan on refinancing to a lower rate in the future. While mortgage rates are likely to decline over the next 18 months, it’s also incredibly difficult to predict when rates will fall and by how much — just ask last year’s homebuyers. Those who are planning to take the “buy now, refi later” approach should proceed with caution and ensure they can afford their monthly payments at current rates without the uncertain future of refinancing down the line.
Amid High Rates, Buyers Still Believe Homeownership Is Worth It
Mortgage rates are clearly top of mind for homebuyers in 2024. When asked for their No. 1 priority when choosing a mortgage, 24% of buyers answer “getting the lowest mortgage rate possible.” More than a third (36%) say that having affordable monthly payments was their top priority — a metric that’s closely tied to mortgage rates. After all, lower rates translate to lower monthly payments.
Even though high mortgage rates have had an impact on housing affordability, many homebuyers still believe that homeownership is worth the cost. When asked for the primary reason why they’re buying a home rather than renting, the most common response was that buyers believe owning a home is a better investment than renting (29%).
The second-most-common reason for buying came as a bit of a surprise to me, because it’s why I decided to buy a home: A fifth of buyers (21%) want to live in a place long term without having to worry about moving. Let’s face it, moving is a hassle — it’s expensive, inconvenient and time-consuming.
But buying a home isn’t exactly a walk in the park, either. The vast majority of respondents (91%) say they’re at least somewhat stressed about buying a home this year, with a quarter (25%) being extremely stressed. First-time buyers are much more likely to report being stressed than repeat buyers.
It may not be an easy time to buy a home, especially for those who are trying to time the market by waiting for mortgage rates to drop. But 2024’s buyers are clearly motivated by one reason or another — whether they want more space for their family or they simply don’t want to answer to a landlord anymore.
[Compare: Compare Current Mortgage Rates]
Survey Spotlight: Is 2024 the Year of New Construction?
One byproduct of high mortgage rates has been the mortgage lock-in effect, in which current homeowners are reluctant to sell and risk losing their much lower mortgage rates and monthly housing payments. This has been a drag on existing-home inventory for much of the past year, which has led many buyers to turn their focus toward the new home market.
Over half of 2024 homebuyers (52%) plan on purchasing a new-construction home rather than an existing home. First-time buyers are more likely to opt for new construction than repeat buyers, at 55% vs. 45%.
When asked why they’re choosing a new build, 50% of buyers say that being able to pick the finishes and fixtures in their home was a factor in their decision, and 36% simply don’t want to worry about the maintenance that comes with owning an older home.
About two in five (42%) chose a new-construction home in part because the builder is offering incentives like interest-rate buydowns and price discounts. And 61% are using the homebuilder’s preferred lender — which is often required in order to take advantage of promotional mortgage rates.
Nearly a third (31%) of those who are buying new construction are doing so in part because the inventory of existing homes in their market is insufficient. Across all 2024 buyers we surveyed, about one in six (17%) say there are no homes that they would buy that are within their budget.
“Builders continue to benefit from a lack of resale inventory. … When there are no suitable existing homes for sale, a new home at the right price can be a good alternative,” Ksenia Potapov, economist at First American Mortgage Solutions, says in a Feb. 16 statement.
Advice for Those Buying a Home in 2024
For two consecutive years, homebuyers have been playing the waiting game, holding out for lower rates, uncertain of when they will come. Those who were waiting for rates to fall in 2023 saw little relief, and many of those who are buying a home in 2024 have already been on the sidelines for a while.
If you’re planning to buy a home this year, you might be asking yourself if it is really worth waiting. And unfortunately, the answer isn’t always crystal clear.
For starters, mortgage rate trends are incredibly hard to predict, even for lifelong economists. Fed Chair Jerome Powell said it best in September 2023: “Forecasts are highly uncertain. Forecasting is very difficult. Forecasters are a humble lot with much to be humble about.”
Many forecasters expected mortgage rates to fall in 2023, but that didn’t happen. Most forecasters now expect that rates will decline in 2024 — which is more likely than not, but forecasts have been wrong before.
[READ: 2024 Mortgage Forecast: When Will Rates Go Down?]
Let’s say rates do decline to around 6% by year-end, as many economists predict. If you plan to wait six months for rates to drop, know that you’re not alone. Over the past few years, homebuyer demand has picked up when rates are lower — which means you could face increased competition amid stubbornly low inventory.
On the other hand, let’s argue that you buy a house now. Inventory is still relatively low from a historical perspective, but so is demand, so you may be able to have a little more room for negotiation. Maybe you’re able to make an offer below asking price, or maybe you’re able to include contingencies for a home inspection and home appraisal. As long as you’re comfortable with your housing payments now, you could always refinance down the line if rates fall. Just know that refinancing costs money, too.
With all things in life, your mileage may vary. The best decision for your needs will depend on your local market, your income, your budget for a home and so much more. If you’re among the 46% of homebuyers who are searching for their “forever home,” keep this in mind: Your next home should be a place where you can enjoy living in the long term.
More from U.S. News
2024 Mortgage Forecast: When Will Rates Go Down?
Two-Thirds of Homebuyers Are Holding Out for Lower Rates
Buy Now, Refi Later: 84% of Recent Homebuyers Plan on Refinancing
Survey: 2024 Homebuyers Are Still Waiting for Lower Rates originally appeared on usnews.com
