Mortgage Rates Are Falling. But Here's Why You Should Wait to Buy a Home
You might pay less interest on a mortgage now than you would've earlier in the year. But read on to see why waiting to buy still makes sense.
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If you've been keeping track of mortgage rates, you're no doubt aware that in recent weeks, they've fallen to their lowest level since early 2023.
Granted, today's mortgage rates aren't low per se. You're still looking at a rate a little over 6%, on average, for a 30-year loan. But seeing as how mortgage rates were close to 8% about a year ago, paying a little more than 6% doesn't seem like such a raw deal.
You may be inclined to try to buy a home before the end of the year, given where today's mortgage rates are sitting. But here's why waiting a bit longer could be a much savvier financial move.
There could be a lot more relief in store
At this point, you may be able to lock in a mortgage rate you're reasonably happy with -- especially if you shop around for a home loan. But that doesn't change the fact that home prices are still high.
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In August, the median existing home sale price across the U.S. was $416,700, according to the National Association of Realtors. That's a 3.1% increase from a year prior, and it represents the 14th month in a row that home prices were up on an annual basis.
Meanwhile, the average 30-year mortgage rate as of this writing is 6.12%. If you were to put 20% down ($83,340) on a $416,700 home, at that rate, you'd be looking at a monthly payment of $2,024 for principal and interest. And that doesn't even include property taxes and insurance, which you'll be on the hook for as well.
That's why waiting until 2025 to buy a home could be a smart bet. There's a very good chance home prices will fall in the coming months. If mortgage rates dip a bit more in conjunction with that, which is expected to happen as the Federal Reserve keeps lowering its benchmark interest rate, you might be looking at decent savings on a home.
Why might home prices come down in 2025? It's simple. The reason a lot of people haven't wanted to sell in the past couple of years is that they didn't want to give up the mortgage rates they locked in around the time of the pandemic, when rates fell to record lows.
But as mortgage rates continue to come down, current homeowners will be more willing to sell their homes and sign mortgages again if rates aren't so high like they were at several points last year and early this year.
Meanwhile, as sellers begin to list their homes and inventory increases, it should narrow the gap between supply and demand. That, in turn, should lead to lower home prices.
Sitting tight could work to your benefit
If you've been waiting a long time to buy a home, you may be eager to take the leap sooner rather than later. But remember, mortgage rates started trending downward before the Fed's first interest rate cut in September. And they're likely to continue falling as the Federal Reserve moves forward with more rate cuts. By the midpoint of 2025, we may find that home prices are significantly lower than they are today.
In fact, let's say the median home price falls to $390,000 by June, while the average 30-year mortgage rate falls to 5.9%. (We may see steeper declines, but let's be conservative.) In that case, with a 20% down payment of $78,000, you're looking at a monthly mortgage payment of $1,851 for principal and interest, as opposed to the $2,024 we calculated above.
That's a difference of almost $2,100 a year. So while being patient isn't always easy, and especially not when it comes to your housing situation, right now, it could pay off in a very big way.
Plus, if you wait to buy a home, you have an opportunity to improve your credit, which could set you up for an even better mortgage rate. And you can also sock away extra money for either your down payment or the cost of moving into your new home.
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