On the fence about selling your home? Or maybe you’d love to be a buyer, but wonder whether to watch and see if mortgage rates drop… And why not wait for better rates, if you have time to spare?
Then again, summer is a traditionally popular time to move.
Did you know most deeds change hands in June? It’s a fact – and June 2024 should be no exception.
To Wait or Not: As Rate Cuts Haven’t Come Yet, That’s Still the Burning Question.
A lender charges a percentage of the loan in return for extending credit to a home buyer. How much money will buyers pay in interest? Much depends on the Federal Reserve, which tweaks interest rates in its efforts to bolster the U.S. economy overall. Over the past four years, the Fed has ratcheted rates up sharply.
U.S. inflation figures are surprisingly stubborn. In response, the government is telling us that the rates they set will “stay higher for longer.” So now, with mortgage interest rates hovering around 7%, many people are staying on the fence about whether to get into real estate deals this summer. Buyers want lower rates. Sellers would like rates to come down, too — so they can more easily buy their next homes.
For those who take the plunge, the silver lining is the borrower’s ability to get a break from the IRS for the amount of mortgage interest paid over the tax year. That helps. Still, a loan’s interest rate can make or break a household’s monthly budget.
No wonder some borrowers are opting to pay than the lender requires each month — to get the principal down, so there’s less interest to pay. That’s one coping strategy in a high-rate season.
Waiting for Lower Rates Means Timing the Market. That Can Easily Backfire.
“You can’t time the market.” It’s often said, and it tends to be true. Here are several flies in the ointment if you’re waiting for the right interest rates:
- Waiting for rates to drop down to a particular level could mean waiting indefinitely. Already, rates have stayed higher than many industry insiders were expecting a few months ago. If there was a perfect time and a perfect interest rate for mortgage borrowing, it has passed like water under a bridge. Buyers might be on the fence forever, waiting for the next “right time” to make a deal.
- When interest rates do start coming down, they’re only likely to dip, not plunge. After all, the government doesn’t want to excite the market too quickly and drive prices up. (That’s why the Federal Reserve has been so slow to cut. The government points to inflation, warning rate cuts would stimulate buying sprees.)
- And here’s the real kicker for those who wait. Lots of other buyers will be right there with them — people who are also waiting in the wings to buy at the “right” time. Lower interest rates can stimulate bidding wars. So, waiting — for those in the position to try to time the market — could backfire. As high as they already are, home prices can indeed go higher.
Of course, the biggest drawback in waiting is putting important life goals on hold. Those who want to acquire a deed have plenty of reasons to get it done sooner rather than later.
We can’t advise on a reader’s personal financial situation and goals. But we can take a look at reasons to acquire a first (or next) deed this summer. Let’s do this now.
A Deed in the Hand…Has Advantages.
What are the advantages to jumping off the fence and into the market fray? Consider whether any of these could apply in your situation:
- There’s the benefit of the ever-popular 30-year fixed-rate mortgage loan. With a fixed rate, a household’s core costs are predictable. This gives deed holders a firmer grip on housing costs than most of today’s renters have.
- Once the closing costs are paid, a property owner can settle into a repayment schedule. Month by month, mortgage borrowers build both their home equity, and their credit profile. Paying off a mortgage is a powerful credit builder.
- Equity building is taking longer these days, given the combination of high real estate prices and mortgage costs. The sooner a household starts accumulating home equity, the faster they can tap into the home’s value.
- Home equity can be tapped for renovations, tuition, or retirement purposes. It can even help a homeowner acquire their next deed. It can’t be tapped, though, until it’s accumulated.
Real estate values tend to rise over the years, according to industry sources like Freddie Mac and the Federal Reserve Bank of St. Louis. While property values have recently stalled out, rate cuts in the second half of 2024 are, yes, still widely anticipated. We expect decreased borrowing rates to have an uplifting effect on property values.
And when values rise, owners accumulate wealth in the form of home equity. This is one reason why so many of today’s current deed holders can buy their next home with cash. Paying with cash means avoiding mortgage interest. Newly released figures from the National Association of REALTORS® show a third of recent home buyers paying in cash. There haven’t been so many all-cash buyers in over a decade.
When In Doubt, Do Without? Not Necessarily.
High interest is a stubborn and difficult issue — no question. For many, this raises queries about the best way forward to making a down payment and acquiring a deed. Can you relate?
Talk with an agent. Reputable consultants and real estate agents in your area have insights to help you make a sound decision under “higher for longer” interest rate conditions.
After all, buying a home isn’t just about the mortgage rate — as serious as that factor is. Buying a home means acquiring a deed.
Putting down roots.
Building the financial strength to fortify us, as life unfolds.
Supporting References
The National Association of REALTORS® Economists’ Outlook blog: Instant Reaction – Mortgage Rates (Apr. 11, 2024).
Keeping Current Matters® (Richmond, VA) via KeepingCurrentMatters.com: Questions You May Have About Selling Your House (May 23, 2024).
Natalie Tubbs for Allen Edwin Homes at AllenEdwinHomes.com: Seize the Moment – Why Buying a Home Now Outweighs Waiting for Interest Rates to Drop (May 29, 2024). See also From Renter to Homeowner – Why Now Is the Time to Make the Leap to New Construction Homes (May 23, 2024).
Deeds.com:Feeling Merry – Why Sellers Love the Month of May (May 6, 2024).
Vanguard Title Company: In Your Best Interest – Waiting for Rates to Drop Vs. Buying Now and Refinancing Later.
Leila Fadel (host) and Juma Sei (author), for Morning Edition in NPR News (via NPR.org): Experts Say Don’t Wait for Interest Rates to Drop Before You Buy a House (broadcast on May 1, 2023 by WHYY Public Broadcasting Service / National Public Radio).
Federal Reserve Bank of St. Louis: FRED economic data.
And as linked.
More on topics: How buying a home can offset inflation, Down payments keep rising
Photo credits: Pauk, via Flickr/ Wikimedia Commons, licensed under CC BY-SA 2.0 Generic; and Nick Youngson via Blue Diamond Gallery, licensed under CC BY-SA 3.0.
