As the spring homebuying season heats up, many prospective home shoppers are faced with the decision of whether to buy now or wait for potentially lower mortgage rates. While lower rates can provide more financial flexibility, they can also attract more buyers, leading to increased competition and driving up prices in the market. Despite the current average rate on a 30-year mortgage being around 6.9%, experts believe that rates may decline later in the year, prompting some buyers to consider acting sooner rather than later.
The combination of elevated mortgage rates and a significant increase in housing prices has made buying a home less affordable for many Americans. A recent analysis found that the typical U.S. household earns less than what is needed to afford a median-priced home, even factoring in a 15% down payment and the current average rate on a 30-year loan. Lower mortgage rates would increase buyers’ purchasing power, making it more affordable to finance a home purchase.
Economists predict that mortgage rates may ease later in the year, but this is contingent upon inflation cooling enough for the Federal Reserve to begin lowering its short-term interest rate. Factors such as the bond market’s response to the Fed’s actions can influence mortgage rates, leading to uncertainties in the market. Despite this, some home shoppers are taking a cautious approach, eager to avoid a surge in competition if rates were to decline in the coming months.
Real estate agents across the country have noted that bidding wars are still occurring, albeit less frequently than in recent years. The overall market remains in favor of sellers, with thin inventory levels leading to increased flexibility from sellers on pricing and other terms in some areas. However, the spring market has seen an increase in active listings compared to the previous year, providing buyers with more options to choose from. Home shoppers considering waiting for better options to arise may want to consider putting in an offer sooner, especially in areas with limited inventory.
Builders have responded to higher mortgage rates by cutting home prices and offering incentives to buyers, such as mortgage rate buydowns and below-market-rate financing. Construction of smaller, more affordable homes has also increased, resulting in a decrease in the median sale price of new homes. As new construction continues to grow, home shoppers may have better luck finding affordable options in the market. Additionally, proposed changes to real estate agent commissions may impact buyers and sellers who wait until later in the summer to enter the market.
Overall, the decision on whether to buy now or wait for lower mortgage rates depends on individual circumstances and market conditions. While some buyers are choosing to act now to avoid competition and take advantage of current rates, others are holding out for potential savings in the future. With uncertainties surrounding inflation, interest rates, and market dynamics, it is crucial for home shoppers to consider their financial goals and priorities when making this decision.
