Homebuyers waiting on the sidelines for prices or mortgage rates to fall this year were sorely disappointed. According to U.S. News Housing Market Index, the median home price was up 5.1% year-over-year as of October 2024, and 30-year mortgage rates remain well over 6%.
Sticky inflation in 2023 kept the federal funds rate high. However, as inflation cooled, the Federal Reserve cut interest rates three times in 2024: in September, in November and, most recently, on Dec. 18, when the Fed cut interest rates by a quarter point as expected. But the Fed suggested that the pace at which it will reduce rates next year would be cut in half.
Interest rates are now a whole percentage point lower than a year ago, yet mortgage rates remain high, around 6.85% for a 30-year fixed-rate mortgage, nearly unchanged since January 2024.
The burning question on people’s minds is how this rate drop, and potentially others, will impact the real estate and mortgage market. Many homebuyers are wondering if 2025 will bring more favorable conditions. And if so, will 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 personalized to you and your financial circumstances. There’s also no way to predict what the housing market will do. However, there are a few scenarios to consider to help you determine which move might be best for you.
[READ: Compare Current Mortgage Rates]
Understanding Fed Rate Cuts and Mortgage Rates
The housing market is sensitive to changes in interest rates. In a high-interest-rate environment, mortgage rates tend to rise as well.
While the federal funds rate does impact mortgage rates, don’t expect mortgage interest rates to decrease when the Fed targets a lower interest rate.
“When the Fed drops the fed funds rate, it does not directly impact long-term mortgage rates,” says Kelly Zitlow, senior mortgage advisor and executive vice president of sales and marketing for Cornerstone Home Lending in Scottsdale, Arizona.
It impacts short-term rates, like U.S. Treasury bonds or credit card rates. Long-term fixed mortgage rates generally react to the same conditions that drive the Fed to make its decision, not necessarily to the Fed interest rate change itself.
The Fed dropped the funds rate by 1 point this year. “But we’ve already seen that priced into mortgage rates, which are hovering around 6%,” Zitlow says.
Interest rates play a key role in affordability and are an important factor when deciding if it’s the right time to buy — but they’re not the only consideration.
[The Fed Cut Rates. Why Are Mortgage Rates Higher?]
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 need 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. Just make sure you can afford the cost of owning it, which includes setting aside money for property taxes, insurance and maintenance, all of which increase with time.
Buy Now: A High Interest Rate Doesn’t Scare You
As of Dec. 18, the average 30-year-fixed mortgage APR is 6.85%, the average 15-year fixed mortgage APR is 6.01%, and the average FHA mortgage APR is 6.28%. The Fed has stated they could make two more rate cuts in 2025, but it won’t be as hawkish of a year.
Those waiting for a huge rate drop in the new year should reframe their perspective. Mortgage rates hovering near 3% to 4%, seen during the pandemic, 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.
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 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 Oklahoma City for example: The median home price in October 2024 was $265,000, according to the U.S. News Housing Market Index, an 8.2% increase compared with last year. To buy a median-priced home there, you would you need up to $53,000 for a down payment plus closing costs. Based on a rate of 6.85% for a 30-year fixed-rate mortgage on $212,000, your monthly payment without taxes and insurance would be around $1,389.
The median rent in Oklahoma City, on the other hand, is just over $1,371, according to the Housing Market Index. 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.
Wait to Buy: You’re Not Finding the Right Home
Housing inventory has steadily increased in 2024, with the number of active listings for sale in November 2024 reaching their highest level since before the pandemic. However, the U.S. is still short on inventory. 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. If rates come down, even to the low 6% range, sellers may return to the market, 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% in the new year.
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.
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Should I Buy a House Now or Wait? originally appeared on usnews.com
Update 12/19/24: This story was published at an earlier date and has been updated with new information.
