With mortgage rates falling, is it time to buy a home?

VaselineAugust 9, 2024

0 6 minutes read

With mortgage rates falling, is it time to buy a home?

Buying a home at what could be the top of the market could be a big risk, but with mortgage rates at their lowest level since 2023 and expectations that the Federal Reserve will soon start cutting interest rates, you might want to consider to this. Is it a good time to jump back or would it be better to wait a little longer?

The 30-year fixed mortgage rate fell to 6.55% in the week ending August 2, 2024, down from 6.82% the previous week, according to the Mortgage Bankers Association (MBA). This week, the rate fell even less, falling to an average of 6.34% before rising slightly. The figure represents a 15-month low not seen since April 2023, which for some buyers could look like an entry opportunity. However, while the lower rate is a respite for potential buyers, it is still a historically high number and not that far from the 22-year high of 7.83% reached in October 2023.

Rising mortgage rates have put the brakes on what was a buoyant housing market just two or three years ago. Mortgage rates fell to historic lows below 3% during the 2020-2021 Covid-19 period, in line with accommodative government policy, including a Federal Reserve setting the Fed funds rate at a historic low. But this led to an inflationary environment that led to the Fed raising interest rates 11 times to try to counter rising prices. Home prices also rose, mortgage rates rose and new inventory fell, causing many people to shy away from the housing market. After pausing its rate hike campaign in 2024, the Fed is expected to start cutting interest rates again immediately after the September meeting. Although not directly related, lower interest rates can influence mortgage rates, meaning that the expected decrease in the federal funds rate should lower mortgage rates further in the future.

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So what should a potential home buyer do? Home prices are still high: The median sales price for an existing home rose 4.1 percent in July from June to hit a second all-time high of 426,900, according to the National Association of Realtors (NAR). Not to mention, 81% of consumers think it’s a bad time to buy a home, according to the Fannie Mae Home Purchase Sentiment Index, released in July 2024. If you’re a buyer, this is a nightmare. If you’re a homeowner, it can be a reason to celebrate. Either way, it should give you pause.

There is no doubt that houses are overrated. Add in still historically high mortgage rates and sluggish demand, and we may have a stagnant, even negative, housing market for the foreseeable future. So should you buy now near the top of the market or wait until things cool down?

Should you buy a home now or wait?

While still historically high interest rates may make it more difficult for first-time homebuyers to qualify for a mortgage, this segment of the buyer population accounted for 32% of sales in March 2024, compared to 28% in previous. Luxury home sales are also at an all-time high, largely because high mortgage rates aren’t a deterrent for wealthy cash-paying homebuyers.

Although buying builds equity and offers stability, as well as the freedom to renovate and make changes as you please, renting is now cheaper than buying in all 50 states. If you need to move, maybe consider renting for a while until the market cools or interest rates drop.

Note that renting has become increasingly difficult, however, with the supply of apartments growing by just 0.6% since January 2024. Additionally, only 39% of renters make enough money to afford the median-priced apartment, according to a recent Redfin report showed. That means there is no easy answer to buy now or wait, as you may find yourself between a rock and a hard place.

Buy now if you need to move

Not everyone has the luxury of waiting until the housing market cools down to buy a home. Maybe your job has moved you across the country, or you’re pregnant and the one-bedroom apartment isn’t working anymore. The good news is that homes seem to be selling fairly quickly, according to the National Association of Realtors (NAR), with an average of 33 days on the market in March 2024.

While renting is always an option, if you need to move and feel financially ready to own a home, meaning you can qualify and make monthly mortgage payments and other expenses, it may be better to buy now than to wait You can start building equity while taking advantage of tax deductions on mortgage interest, home improvement costs and property taxes.

Christopher Davis, assistant vice president of home lending at Navy Federal Credit Union, says if you need to move, “Make sure your monthly payment fits your budget and carefully consider the price of a new home when shopping. Also, be selective when determining which features are important. You may have built up large amounts of equity in your current home, giving you desirable options for your new home.”

Buy now if you plan to stay put

If you plan to stay in the home for a long time, buying now rather than waiting might be smart. That’s because, at the current rate of home appreciation, the home you’re buying now will likely cost you more in the future. Plus, you’re now building substantial equity in your current home, and even if home prices drop, you won’t be hurt because staying long-term gives the market time to bounce back when it’s time to sell.

Beyond the purchase price, you’ll likely pay thousands of dollars in closing costs when you buy a home. To justify these costs, it’s best to be sure you won’t be moving anytime soon. Additionally, selling a home very soon after buying it can have serious tax implications.

Buy now if you are financially stable

The best mortgage deals are available to people with the best credit scores. According to the Federal Reserve Bank of New York, the median credit score for mortgage borrowers in the first quarter of 2024 was 770. To qualify for a mortgage, you must demonstrate that you are at low risk of missing monthly payments . It’s also important to have enough in the bank for a down payment and closing costs — which typically range from 2% to 5% of your mortgage and are paid on top of your down payment.

Wait if you can’t afford to buy

As obvious as it sounds, if you can’t afford the monthly payments, let alone closing costs, a down payment, and other ownership costs, then it might not pay to buy—at least for now, especially since renting it is now less expensive. than buying.

Wait until your credit improves

If you need help qualifying for a mortgage at a good rate because of a low credit score, low employment, a high debt-to-income ratio, or too much debt, it may be better to wait However, keep in mind that many experts predicted that house prices would fall in 2023 along with lower interest rates, but none of that happened. So now might be a good time to work on your finances so that when prices and rates drop, you’ll be ready.

Wait if you can’t find a home

In June 2024, existing home sales fell (5.4%) as the median sales price climbed to an all-time high. In fact, all four major U.S. regions saw sales decline, according to new data from the National Association of Realtors (NAR).

“We are seeing a slow shift from a seller’s market to a buyer’s market,” said NAR Chief Economist Lawrence Yun, as reported on the NAR website. “Homes are sitting on the market a bit longer, and sellers are getting fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitely up nationally.”

As existing home sales stall, you may struggle to find a home that meets your needs at a price you can afford. Instead of compromising your wish list, consider waiting until stocks increase.

Key recommendations

The housing market in 2024 makes it difficult for potential buyers to buy right now unless you are paying cash and credit is not an issue.
If your credit score is good and you have enough cash to cover your monthly mortgage payments, down payment and closing costs, buying now might still be smart.
If you plan to stay in the home for a long time, even at higher prices, now might be a good time to buy for equity.
If your finances aren’t ideal or if home values in your area are falling, it might be better to wait.

Conclusion

There is no right or wrong answer to whether now is a good time to buy a home. This decision is personal and depends on a number of factors. Plus, there’s no way to know what the future holds for the housing market and mortgage rates. That’s why it’s important to weigh your options and make a decision that makes sense for both your finances and your family.

VaselineAugust 9, 2024

0 6 minutes read

Vaseline

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