Buying a house is a big decision that is personalized to you and your financial circumstances. There’s also no way to predict precisely what the market will do in the near future.
Many prospective homebuyers have been biding their time over the last year, waiting for more favorable conditions. Demand has fallen but home prices continued to climb despite high interest rates. As of July, the median home price was up 4% year over year, according to U.S. News Housing Market Index.
Sticky inflation rates at the start of the year kept the Federal Reserve from lowering interest rates, but that changed in September. The Fed cut interest rates by half of a percentage point on Wednesday, which should lowerconsumers’ borrowing costs.
The housing market is sensitive to changes in interest rates. In a high-interest-rate environment, mortgage rates tend to rise, as well. Don’t expect mortgage interest rates to automatically decrease, however, when the Fed targets a lower interest rate. Long-term fixed mortgage rates generally react to the same conditions that drive the Fed to make its decision and not necessarily to a Fed interest rate change itself.
The burning question on people’s minds is how this rate drop, and potentially others, will impact the real estate and mortgage market. Mortgage rates have dropped below 6% and are at their lowest level since February 2023, according to Freddie Mac. The Fed also updated its projections for interest rates and the economy. Another cut in the fed rate is expected this year, followed by one in 2025.
Will 2025 bring more favorable conditions for homebuyers? And if so, do the more favorable conditions mean you should wait to buy or is buying now the right move?
There’s never a one-size-fits-all answer to whether now is the right time to buy a home. It’s a big decision that is personalized to you and your financial circumstances. There’s also no way to predict precisely what the market will do in the near future. However, there are a few scenarios to consider to help you determine which move might be best for you.
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Buy Now: You Need to Move And Can Afford It
Maybe it’s a job opportunity, a change in family structure, the unmanageable cost of your current property or an expiring lease. Whatever the need is — you have to make the choice to find a new place to rent or a home to purchase.
Renting is always an option, but for those who are financially ready for homeownership, it’s often better to buy now versus wait. Buying now can secure you a home to settle into and begin building equity.
Owning also allows you to take advantage of other homeownership benefits, like tax deductions from the interest you paid on a mortgage, property taxes and other home repair-related costs.
Buy Now: A High Interest Rate Doesn’t Scare You
Mortgage rates dropped into the low to mid-6% range as of early September 2024, and by the time of the Fed cut stood at 5.88%. This makes today the most affordable time to buy a house in the last 18 months.
This is precisely where experts predicted rates would be before we entered this year. However, some wonder if rates will fall further as the Fed shifts its focus to the state of the employment market.
The latest job market report published by the Bureau of Labor Statistics for August 2024 pinned the U.S. employment rate as sluggish at 4.2%. The rate is higher than a year ago, and could be a signal for the Fed to get the economy moving.
Kelly Zitlow, senior mortgage advisor and executive vice president of sales and marketing for Cornerstone Home Lending in Scottsdale, Arizona, says it is critical to understand how the federal funds rate impacts the mortgage market.
“When the Fed drops the fed funds rate, it does not impact long-term mortgage rates,” she says. It impacts short-term rates, like U.S. Treasury bonds or credit card rates, not mortgage rates directly.
Given it’s been more than a year since the last rate cut, experts predicted a September basis reduction ranging from 25 to 50 points. “But we’ve already seen that priced into the mortgage rates, which are hovering around 6%,” says Zitlow.
Zitlow predicts mortgage rates could reach somewhere above 5% by the end of the year, but “I don’t think rates will be below 5%. In reality, we’re not that far off from that right now,” she says.
Those waiting for a huge rate drop should reframe their perspective. Mortgage rates hovering near 3% to 4% isn’t the norm historically. According to data from Freddie Mac, since 1971, when it started tracking mortgage rate movements, rates have remained at or above 6% nearly every decade aside from the period following the Great Recession.
If you can still afford to buy and maintain your monthly costs at today’s rates, then buying now is the better move. You always have the flexibility to refinance and secure a lower monthly payment in the future if rates drop.
“Markets, values and rates are always changing, so it’s crucial to make the most of the present. If you’re renting and can qualify, now is the best time to take the leap,” says Jeff Ocasio, a loan officer with Fairway Independent Mortgage Corp. in Tampa, Florida.
Just remember to keep your credit score up, stay employed and don’t make any mistakes that will inhibit your refinance strategy when rates do drop.
[READ: What Does It Cost to Own a Home?]
Buy Now: You Plan To Stay in the Home for a Long Time
Renting is a great solution for those who might not know where they want to buy yet. For example, you may choose this path if you recently moved to a new city and aren’t sure where you’d like to live long term, are considering a new job that would require another move or are expecting a big change in family structure in the next year or two that could lead you to move again.
But for those who don’t intend to relocate any time soon, buying now is definitely the better move. Steavy Carter, a real estate agent with Rogers Healy and Associates in the Dallas-Forth Worth area, consistently advocates that now is the right time to buy if you’re financially ready.
“The appreciation rate in the greater Dallas market over the last 10 years has averaged between 7% and 8.5% year over year,” Carter says. “That means a home purchased in 2014 for $500K has nearly doubled in value. If home appreciation continues, the house you pass on now will cost you more the longer you wait.”
If prices continue to rise, you’re building equity with each mortgage payment you make. If prices fall, you won’t be as worried because you intend to stay in the home for the long term. This gives you more time for prices to rebound when it comes time to sell and still leaves you in a solid financial position. Either way, you have your foot in the door to build equity instead of leaving a rented home with nothing to show for it.
Wait to Buy: You Can’t Afford a Median-Priced Home at Today’s Rates
Purchasing a home is an expensive endeavor. Not only do you need to have a large chunk of cash saved up for a down payment and closing costs, but there are usually more costs associated with owning than with renting. Aside from a few select markets, renting is more affordable than owning a home. This is true even in what’s considered low-cost housing markets.
Take Cincinnati, for example — the median home price in July was $300,000, according to the U.S. News Housing Market Index, a 5% increase compared with last year. Not only would you need up to $60,000 for a down payment, plus closing costs, but based on a rate of 6.35% for a 30-year fixed-rate mortgage on $240,000, your monthly payment without taxes and insurance would be $1,493.
The median rent in Cincinnati, on the other hand, is just over $1,547. While that’s slightly higher, as a renter you aren’t responsible for added maintenance costs, property taxes or insurance, making it a more affordable financial move in the short term.
If the mortgage payment plus home operation costs would be a struggle with your income and budget, then waiting to buy is the better move.
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Wait to Buy: You’re Not Finding The Right Home
Housing inventory is slowly increasing in some markets but is still near historically low levels. There was a three-month supply of homes for sale in August 2024, according to Redfin, remaining flat year over year. Around five to six months of supply is considered a balanced market.
The lack of inventory means many buyers struggle to find a home that meets their needs at a price they can afford. If you’re having trouble finding the right house due to a lack of supply in your local market, consider waiting until inventory increases in the future.
“There’s a chance housing inventory and demand will increase as interest rates drop,” Carter says. Many homeowners who secured a mortgage when rates were 3% or 4% feel stuck waiting for a more affordable time to re-enter the market. As rates come down, they could return to purchase a home, in turn helping inventory increase.
Wait to Buy: You are Struggling to Qualify at Current Rates or Prices
If you’re finding it difficult to get approved for a mortgage based on your current employment, debt-to-income ratios, outstanding debt or average price of a home at today’s rate in your market, then it’s better to wait to buy. “Focus on financial preparation as you wait. Take steps to lower debt and elevate your credit score. You never want your home purchase to put you in over your head financially,” says Carter.
There’s a chance mortgage rates will fall slightly by the end of 2024 and the beginning of 2025. However, it’s unlikely rates will drop below 5.5%. Right now is one of the more favorable times to buy. “Across the nation, we still have a shortage of homes. If you’re able to buy right now or need to, buy now,” says Zitlow.
Remember, no expert has a crystal ball to accurately guess what will happen in the housing market in the coming year. Perfectly timing the market isn’t the goal. This decision should be determined by your personal needs, financial means and the time you have to find the right home. what
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Should I Buy a House Now or Wait? originally appeared on usnews.com
Update 09/19/24: This story was published at an earlier date and has been updated with new information.
