Tired of waiting for mortgage rates to come down? You’re not alone. Every potential buyer out there is waiting for the same thing, the problem is the Federal Reserve isn’t moving the needle, so it might be a long wait.
The Federal Reserve made no move in their last meeting in April, not up, not down. The good news is since they didn’t move rates up, it’s obvious they’re still fighting inflation, which simply refuses to budge. The stock market loved the status quo and enjoyed two big days thinking the Feds will eventually see the light and start reducing rates. Maybe yes, maybe no. Meanwhile, sellers who are desperate to sell their homes but don’t want to give up their low-interest rate mortgages are sitting back, and the buyers who were able to buy a lot more house three years ago are wondering what the heck just happened.
What happened is that in March of this year, a median-income household could afford to buy a house for no more than $416,000, assuming a 20% down payment. Three years earlier, that same household could afford a purchase price of up to $561,000, all things being equal. Then of course there are renters, 20% of them, who don’t expect to ever own a home based on a property management firm’s survey.
So, what are the experts saying? According to Forbes, Freddie Mac says mortgage rates will stay above 6.5% through this quarter. Fannie Mae is forecasting the 30-year fixed rate to average 6.6% in 2024 and 6.1% in 2025. The National Association of Realtors says rates will likely be in the 6% to 7% range for most of the year. The Mortgage Bankers Association predicts 6.7% in the second quarter and ending 2024 at 6.4%. Bank of America is anticipating a rate cut in December and is optimistic that mortgage rates will eventually drop below 7%.
There are, of course, more predictions but the common thread they all have is changing opinions from declining interest rates this year to a more modest prediction based on inflation. They also all agree that waiting to jump into the market is not a good idea. If you wait for interest rates to come down, you’ll be fighting an appreciation of values and likely won’t gain anything. Despite elevated mortgage rates, buyers can still look around for the best rate and at least move on with their lives with the option of refinancing the mortgage down the road.
Buyers, especially younger buyers and first-time buyers, may need to reevaluate what they really want. Do they want a home to build a life in or will they just be sitting in their rental and hope the Federal Reserve bails them out? And frankly, 7% is not such a terrible rate. Real estate markets have lived through, survived and even flourished with double-digit interest rates.
The best advice from economists is don’t wait. You can’t time the market and by now the buyers who have been trying to wait it out probably are well aware they may have made a bad choice. Don’t endure more pain; move forward and reorganize your life and assets to accommodate the reality.
