Should you wait for mortgage rates to fall?

In the quest for a new home, the current landscape of mortgage rates poses a challenge. With higher rates come increased monthly payments, making it tough to find affordable housing options. However, despite this hurdle, there are still viable choices available. While holding out for lower interest rates might seem prudent, experts caution against this strategy. But why should one not wait for mortgage rates to decrease before diving into home ownership?Interest rates loom large in the minds of potential home buyers, but is it wise to delay purchasing until rates decrease? Many experts argue otherwise. Here’s their rationale:

Lower Rates Might Result in Reduced Inventories and Higher Prices

John Dustman, Senior Vice President and Head of Consumer Lending and Advisor Banking at Axos Bank, emphasizes the significance of market conditions in the home buying decision. He notes, “Inventory levels across the U.S. have remained depressingly low since the COVID-19 outbreak, coupled with historically low mortgage rates in 2020 and 2021.”

Dustman observes a significant decline in active inventory during the peak demand of 2021, reaching levels as low as one-third of those in 2019. While inventory has since improved, it remains around 50-60% of pre-pandemic levels. Despite the low inventory, home prices haven’t skyrocketed, partly due to the current high interest rates. However, this equilibrium might shift as rates decrease.

Many prospective buyers have been waiting on the sidelines due to high rates and stringent mortgage qualification criteria. As rates drop and these sidelined buyers reenter the market, inventory may dwindle further, driving prices up. Dustman suggests that, paradoxically, the optimal time to buy a home might be when rates are higher and demand is lower.

Delaying Could Result in Missing Out on Your Ideal Home

Amidst nationwide low inventories, finding one’s dream home poses a challenge. However, waiting too long might mean missing out entirely. Austin Niemiec, Chief Revenue Officer for Rocket Mortgage, underscores the perpetual demand for housing due to various life transitions. He warns against delaying a purchase in anticipation of more favorable rates, as this might mean forfeiting the perfect opportunity.

While the ideal home may not coincide with the most advantageous rate environment, Niemiec suggests that buyers who can comfortably afford current payments can always refinance if rates decrease in the future.

Market Timing Is a Complex Endeavor

Bob Driscoll, Senior Vice President and Director of Residential Lending at Rockland Trust Bank, highlights the futility of attempting to time the market perfectly. He dismisses the notion of a “perfect time” to buy a home, emphasizing instead the importance of aligning the purchase with personal goals and values. Driscoll advises prospective buyers to focus on a timeline that suits their life and future plans, rather than waiting for elusive rate drops.

In Conclusion

While interest rates may decrease in the future, delaying a home purchase in anticipation of this might not be prudent. Waiting could lead to higher prices or missing out on the ideal home. Instead, it might be wise to proceed with the purchase now and consider refinancing later if rates become more favorable.