I’ve seen a lot of posts lately on social media talking about waiting for mortgage rates to drop before buying a home.
Or conversely, NOT waiting for mortgage rates to drop before buying a home.
The typical argument, when it comes from an interested party, such as a real estate agent or loan officer, is obviously not to wait.
If you wait, they don’t get paid. Right? Right.
But should you even be trying to time the purchase to begin with?
It’s Impossible to Time Most Things in Life, Especially Mortgage Rates
I remember when mortgage rates were hitting the dreaded 8% mark in late 2023. At that time, there were fears of double-digit rates.
But at the same time, a new narrative emerged.
Perhaps out of desperation, or perhaps out of some sort of real logic, a cohort of real estate agents and mortgage folk came up with a “beat the rush” narrative.
Basically, with interest rates high, there was less competition out there. As such, you could swoop in and buy a home without getting into a bidding war,
And maybe you’d even be able to lowball the seller and get a discount while you were at it. Win-win for an other sub-optinal situation.
The rationale to do so was that once rates did eventually fall, it’d be bidding war central again.
You’d have trouble getting back in. Blah blah blah. This was also around the time that silly marry the house, date the rate line surfaced.
The premise there was that the home purchase would be permanent, but the high mortgage rate didn’t have to be.
In other words, you could still get your dream house, but the 8% mortgage rate could be exchanged for a 4% rate later.
That didn’t appear to work out so well, with mortgage rates still in the high-6% range today.
Sure, some recent buyers were able to get rid of their 7%+ rates and snag a low-6% rate via a rate and term refinance in September and October of last year, but they probably expected much, much better.
What was even more unexpected is that when mortgage rates did eventually fall to the low-6% range, nobody seemed to bite.
After being told to rush in to buy when rates were closer to 8%, there was a new argument to hang tight.
The reason was mortgage rates could come down even more, so why rush in?
So the original argument was completely turned on its head and didn’t pan out as expected.
Instead of bidding wars, it was crickets.
It was wait for mortgage rates to fall to 5% now that they’re back to 6%.
Home Buyers Reacted to Lower Mortgage Rates By Waiting for Even Lower Ones (That Didn’t Come)
Guess what happened? You probably already know. The 30-year fixed reversed course and went back above 7%.
Guess no one saw that coming. Perhaps they should have given the election was right around the corner and many expected Trump to win.
And most expected his policies to be inflationary, which would lead to higher mortgage rates all else equal.
While rates have come down since the inauguration, they’re basically back to the same levels pre-election.
So they went up on fears of inflationary policies like tariffs, then came back down when Treasury Secretary Scott Bessent said it’s not as bad as it sounds!
In the end, rates didn’t really go anywhere, and they’re still about 75 basis points (0.75%) higher than they were in September.
Meaning those who held off on a home purchase hoping for better were left disappointed in the process.
They could have purchased a home when the 30-year fixed was 6%, or even in the high-5s, but now it’s back to the high-6s.
How Much Does the Mortgage Rate Matter in the Grand Scheme?
At the end of the day, how much does the mortgage rate really matter?
Assuming you’re not on the cusp of qualifying for a mortgage, the difference in payment is less than $200 for a rate of 6% vs. 6.75% on a $400,000 loan.
It’s not nothing, it’s still $200, though in the grand scheme of things it’s not a giant number when we’re talking about a big home purchase.
And as noted, there’s also the possibility of a refinance later on (if it pans out).
But it makes you wonder if you should be basing your decision or buy or rent a home, or buy now or buy later, based on what could be a marginal amount.
This doesn’t mean rush in NOW and buy today because you’re throwing away money on rent. No.
The much more important thing is arguably that the property that lies in front of you checks all the boxes and is what you really want.
And you can foresee yourself spending the next 5-10 years there since you’ll probably need to if you want/need to sell.
As I wrote recently, if you’re buying a home today you should expect to stay for a long time.
This has to do with, ironically, high mortgage rates, which have greatly slowed down principal repayment.
This means your loan takes a lot more time to get whittled down, and if you don’t come in with say a 20% down payment, you might not even be able to sell for a profit after a few years.
Even with home price appreciation, selling costs can be substantial and eat into any sales proceeds.
So really, if you’re debating about buying a home today, think beyond the mortgage rate.
Yes, it’s a factor, but it’s not the only factor. And attempting to time the market or guess where rates will be (and how other buyers and sellers might react) is a fool’s errand.
Buy a home because you really want it and can really afford it. And plan to keep it for the long haul.
Some Questions to Ask Yourself
- Mortgage rates might not drop anytime soon. What then? Do I keep renting?
- What if rates go up before they go down again?
- How much does the difference in rate actually affect the monthly payment?
- Why do I want to buy a home right now? Can I wait? Why would I wait?
- Is there a certain mortgage rate that would materially change my decision?
- Do I love the property or am I looking at it purely from a financial standpoint?
- Am I buying the property because I think mortgage rates will go down and I can refinance?
- Am I buying the property because I fear I’ll miss out?
- How long do I expect to keep this property?
Read on: 10 Reasons to Buy a House Other Than for the Investment
