Buying a home at the potential peak of the market could be a big risk, but with mortgage rates at their lowest since 2023 and expectations that the Federal Reserve will soon begin cutting rates, you may be thinking. Is it a good time to get back in, or would you be better off waiting a bit longer?
According to the Mortgage Bankers Association (MBA), the 30-year fixed-rate mortgage rate fell to 6.55% for the week ending August 2, 2024, down from 6.82% the previous week. This week, the rate has fallen even further, falling to an average of 6.34% before rising slightly again. The figure represents a 15-month low not seen since April 2023, which could represent an entry opportunity for some buyers. While the lower rate provides some breathing room for prospective buyers, it is still a high figure by historical standards and not far from the 22-year high of 7.83% reached in October 2023.
The rise in mortgage rates has slowed down the housing market that was still buoyant two to three years ago. During the 2020-2021 Covid-19 era, mortgage rates fell to an all-time low of below 3% in line with loose government policies, including the Federal Reserve setting the benchmark interest rate at a historic low. However, this created an inflationary environment that led the Fed to raise interest rates 11 times to counter the price increase. Home prices also rose, mortgage rates rose, and the inventory of new homes fell, causing many people to avoid the housing market. After suspending the rate hike campaign in 2024, the Fed is now expected to start cutting interest rates again as early as its September meeting. Although not directly related, lower interest rates can affect mortgage rates, which means that the expected decline in the benchmark interest rate should further lower mortgage rates in the future.
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So what’s a prospective homebuyer to do? Home prices are still high: The median sales price for an existing home rose 4.1% in July from June, hitting its 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. For you as a buyer, that’s a nightmare. For you as a homeowner, it might be a cause for celebration. Either way, it should give you pause for thought.
There is no doubt that homes are overvalued. When you factor in still historically high mortgage rates and weak demand, it is possible that we will have a stagnant or even negative housing market for the foreseeable future. So should you buy now at the highest price or wait until things cool down?
Should you buy a home now or wait?
Although first-time buyers may find it harder to get a mortgage because interest rates remain historically high, this group of buyers accounted for 32% of sales in March 2024, compared to 28% a year earlier. Luxury home sales are also at an all-time high, largely because high mortgage rates are not deterring wealthy homebuyers who pay cash.
Although buying increases equity and offers stability and the freedom to renovate and make changes as you wish, renting is now cheaper than buying in all 50 states. If you need to move, you may want to consider renting for a while until the market cools or interest rates drop.
However, keep in mind that renting has also become increasingly difficult, with the supply of apartments increasing by just 0.6% since January 2024. Additionally, only 39% of renters make enough money to afford an average-priced apartment, according to a recent report from Redfin. This means there is no easy answer to the question of whether to buy now or wait, as you may find yourself in a bind.
Buy now if you need to move
Not everyone has the luxury of waiting until the real estate market cools off to buy a home. Maybe your job has moved you to another side of the country, or you’re pregnant and the studio apartment no longer fits. The good news is that homes are selling quite quickly, with an average of 33 days on the market in March 2024, according to the National Association of Realtors (NAR).
While renting is always an option, if you need to move and feel financially ready to buy a home, meaning you can afford the monthly mortgage payments and other expenses and meet the requirements, it may be better to buy now than to wait. You can start building equity while also taking advantage of tax deductions for the mortgage interest, renovation costs and property taxes.
Christopher Davis, assistant vice president of home equity lending at Navy Federal Credit Union, recommends when moving: “Make sure the monthly payment fits your budget and carefully consider the price of a new home as you shop around. Also, be selective when determining which features are important. You may have accumulated large amounts of equity in your current home, which gives you desirable options for your new home.”
Buy now if you want to stay
If you plan to stay in your home for a long time, it may be smart to buy now rather than wait. Because at current rates of appreciation, the home you pass on now will likely cost you more in the future. Plus, you’re building significant equity now with your current home, and even if home prices drop, you won’t be affected because staying there long-term gives the market time to recover when it’s time to sell.
In addition to the purchase price, you’ll likely pay thousands of dollars in closing costs when you buy a home. To justify these costs, you’d better be reasonably sure you won’t be moving anytime soon. In addition, selling a home soon after you buy it can have serious tax implications.
Buy now if you are financially stable
The best mortgage deals are for people with the best credit scores. According to the Federal Reserve Bank of New York, the median credit score for mortgage borrowers was 770 in the first quarter of 2024. To qualify for a mortgage, you must demonstrate that you are a low risk of not being able to make your monthly payments. It’s also important to have enough money in the bank for a down payment and closing costs – which are typically between 2% and 5% of the value of your mortgage and are paid in addition to your down payment.
Wait if you can’t afford to buy
As obvious as it may sound, if you can’t afford the monthly payments, not to mention closing costs, a down payment and other costs associated with owning a home, then buying may not be worth it – at least not right now, especially since renting is now more affordable than buying.
Wait until your credit score improves
If you need help getting approved for a mortgage at a good rate because of a low credit score, low employment, high debt-to-income ratio, or too much debt, it may be better to wait. But keep in mind that many experts have predicted a drop in home prices and lower interest rates in 2023, but none of that has come to pass, so now might be a good time to work on your finances so you’re ready when prices and interest rates do actually drop.
Wait if you can’t find a home
In June 2024, existing home sales fell (5.4%) while the median sales price rose to the highest level ever recorded. In fact, all four major U.S. regions saw sales declines, new data from the National Association of Realtors (NAR) shows.
“We’re seeing a slow shift from a seller’s market to a buyer’s market,” said Lawrence Yun, NAR’s chief economist, as reported on the NAR website. “Homes are sitting on the market a little longer and sellers are getting fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitely rising nationwide.”
If existing home sales are stalling, you may have a hard time finding a home that meets your needs at a price you can afford. Rather than compromising on your wish list, consider waiting until inventory increases.
Key findings
- The real estate market in 2024 is currently making it difficult for potential buyers to purchase a home unless you are paying cash and credit is not an issue.
- If your credit is good and you have enough cash to cover your monthly mortgage payments, down payment and closing costs, buying now may still make sense.
- If you plan to stay in your home for a long time even when prices rise, now could be a good time to buy to build equity.
- If your financial situation is not optimal or real estate prices in your area are falling, it may be better to wait.
Conclusion
There is no right or wrong answer to the question of whether now is a good time to buy a home. This decision is personal and depends on a number of factors. Plus, you never know what the future will hold for the real estate 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.
