The Federal Reserve finally cut interest rates in September, a long-awaited shift that could ease mortgage rates. For would-be homebuyers sitting on the sidelines, the Fed’s change of course is a new factor to consider. Should you buy — or sell — now, or wait to see if future rate cuts lead mortgage rates to fall more?
The decision isn’t a straightforward one. Mortgage rates and home prices are difficult to predict. However, housing experts say mortgage rates are unlikely to return to their pandemic levels, and home prices are poised to keep rising.
The median sale price of an existing home in the U.S. hit an all-time-high of $426,900 in June 2024. While sale prices have decreased a bit since then, home prices hit all-time monthly highs for July, August and September, according to the National Association of Realtors (NAR). Meanwhile, fully 81 percent of consumers believe it’s a bad time to buy a home, according to September 2024 data from the Fannie Mae Home Purchase Sentiment Index.
Still, conditions have improved for buyers in some ways. Mortgage rates topped 8 percent in October 2023, according to Bankrate’s national survey of lenders. They’ve pulled back since then — the average rate as of Oct. 30 was 6.88 percent. In another shift, housing inventory keeps edging up, reaching a 4.3-month supply at the end of September, according to NAR.
It’s a bad time to buy – but things could get worse
Mortgage rates have backed off from last autumn’s highs, but they’re still well above 6 percent. And home prices remain sky-high, with NAR’s September data showing 15 straight months of year-over-year increases.
“Prices aren’t going anywhere,” says Kurt Carlton, co-founder and president of New Western, a real estate investment marketplace.
Carlton points to the imbalance between housing supply and demand as one reason. Builders cut back on construction during the Great Recession, and housing starts have remained muted. Meanwhile, population growth and a strong economy mean more Americans want homes.
For now, the housing market is stuck. The number of home sales nationwide shrank to 3.84 million in September, the lowest pace since 2010, NAR reports.
“When people aren’t sure what to do, they do nothing,” says Katie Severance, an agent at Douglas Elliman in Palm Beach, Florida.
But waiting to buy a home might not be the best call; it’s entirely possible that home prices will keep rising, and the housing market will be even more challenging for buyers in six months or a year.
Consider the housing climate of 2022: Home prices had shot up, and mortgage rates were poised to rise from their record lows. The conventional wisdom among housing experts was that home prices might retreat slightly and that buyers would be wise to wait. Instead, prices kept rising even as mortgage rates doubled.
Today, potential buyers face a conundrum: Is it better to wait for mortgage rates to retreat, knowing that a decline in rates could entice buyers and, therefore, increase demand for a limited supply of homes?
“When interest rates come down, the market can turn around in a hurry,” says Severance.
Melissa Cohn, regional vice president of William Raveis Mortgage, advises those on the fence to buy now, and then refinance if mortgage rates fall. She calls the strategy “marry the house and date the rate.”
What about selling?
If it’s a bad time to buy, it stands to reason that it’s a good time to sell. Indeed, 65 percent of respondents believe now is a good time to sell, according to Fannie Mae’s Home Purchase Sentiment Index. Of course, if you’re a seller who needs to buy another place, you’ll need to take a hard look at how much you’re willing to pay, given the steep value increases in many parts of the country over the past few years.
Local market dynamics also play a role in deciding whether it’s a good or bad time to sell, Severance says. ”In some areas, selling now is the right thing to do because prices are still climbing,” says Severance. “In other markets, it might be best to wait to sell until interest rates come down and stay down, which will spur sales once again.”
Next steps: Getting ready to buy
Buying a home is such a personal choice that it’s hard to say if any particular moment is a good time or a bad time to buy. Say you live in a small apartment and you’re expecting twins — it’s probably time to buy, no matter what’s happening in the broader market. But there are a few ways to make sure you’re prepared:
- Work on your credit score. Your credit score is a crucial factor in determining what kind of mortgage and interest rate you can get. The best deals on mortgages go to borrowers with credit scores above 740. But it is possible to get a mortgage with a credit score of 620 or even lower, although you’ll likely be borrowing through the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loan programs rather than lenders that offer conventional loans.
- Fatten up that down payment. In addition to paying your bills on time, you should work on saving up a sizable amount for a down payment. The more you can pay upfront, the less you’ll need to borrow. Lenders look for additional cash reserves that can provide a cushion when repairs and maintenance costs arise. You don’t need to put down 20 percent, but you should expect to put down at least 3 to 5 percent (unless you get a VA or USDA loan).
- Commit to staying in the home for a while. Beyond the purchase price, buying a home comes with closing costs that can run thousands more. So, to justify those one-time transaction costs, make sure you won’t move again anytime soon — or that you’ll be financially stable enough to hold on to the property and rent it out. What’s more, selling a home shortly after buying can have tax implications.
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