“Will mortgage rates go down?” And, “Should I buy now, or should I wait?” These are questions a lot of people are asking right now, as mortgage rates increase above 7%.
As of October 1, Freddie Mac reported an average 30-year fixed mortgage rate of 7.28%; that’s up from 7.03% the week before. The average 15-year fixed rate was at 6.60%. Now these are national averages, so the rate you may be offered from a lender could be different.
But knowing where rates are today doesn’t tell us where they’ll be next month or next year.
Honestly, nobody can promise where the rates will be. Economists do a great job at studying the data and making forecasts, but a forecast is still a forecast. So, no matter what the headline says, it isn’t a guarantee.
So, how do you decide whether to buy now or wait?
I’ve seen buyers struggle in different markets
When I became a real estate agent in the year 2000, mortgage rates were even higher than they are right now. I still recall the excitement as rates came down to 8%, and I don’t think anyone imagined we’d see 3% rates.
Even though home prices were much lower back then, that didn’t mean it was easier to buy a home. People’s income was different at that time as well, and some buyers still struggled to qualify.
That’s something I’ve seen throughout my career: every market has had its challenges. Sometimes it’s the rate. Sometimes it’s the price. Sometimes it’s finding a home and getting your offer accepted.
That’s why I don’t think the interest rate alone should decide whether you buy.
Lower rates could bring more competition
Of course, a lower rate would be great. It can lower your payment or help you qualify for a different price range.
Lower rates also could mean more competition.
I remember a few years ago how competitive the housing market became. Some homes receiving over 50 offers. There were times I would have to submit 20 plus offers for a buyer before getting one accepted. It felt like winning the lottery.
Often sellers wouldn’t even help with closing costs or other credits. In some situations, buyers were offering $100,000 or more over asking price just to compete.
I’m not saying that exact market will happen again. But waiting for a lower rate doesn’t necessarily mean buying will become easier. You have to look at what’s happening with prices, available homes, and competition, too.
Start with your own numbers
My opinion is that the best first step is to talk with a lender and find out what buying would actually look like for you.
Can you qualify? What would your monthly payment be? Can you buy the type of home you want within a budget that fits your lifestyle?
And I mean your full budget, not just the amount a lender says you qualify for.
If the payment doesn’t work at today’s rate, waiting and preparing may be the right decision. But if it does work, and buying fits your plans, waiting solely for a lower rate means depending on something none of us can control.
Compare buying with what you’re paying now
If you’re renting, you’re already paying to provide housing for yourself or your family.
So I think it’s worth comparing your current rent with the full cost of owning. If you could buy a home close to what you’re paying now, it may be worth considering.
There are times when buying may not be the right option. Sometimes renting does make more sense. Like if you’re expecting to move soon, need flexibility, buying doesn’t fit your current budget, and there are so many other reasons.
Ask about the options available today
Talk to your lender about your options to lower your rate.
There are a lot of new home developers offering lower interest rates, rate buydowns, and other incentives. Sometimes you can also find sellers who are willing to help you with closing costs and buying down your rate.
Thinking of buying at a higher rate and then refinancing later?
If you buy now and rates do come down later, refinancing may give you an opportunity to lower your payment. But, I wouldn’t buy a home that only works for me financially, if I’m able to refinance.
My thinking is this: make sure you can comfortably afford the payment today, without stretching your budget and hoping rates come down.
So, should you buy now or wait?
For me, it comes back to a few questions:
Can you comfortably afford the full payment at today’s rate?
Can you find a home that meets your needs within your budget?
Do you expect to stay for five years or longer, with some flexibility if your plans change?
Will you have savings left after closing for repairs and unexpected expenses?
Your plans for the home matter just as much as the rate.
If the numbers don’t work, there’s nothing wrong with waiting. Use that time to build savings, work on your credit, or get clearer about what your needs are.
But if the numbers do work, I wouldn’t let the hope of a lower rate be the only thing holding you back.