Mortgage Rates Just Dropped to a Four-Month Low. Should You Buy a House Now—or Wait?

Ryan McDonough is looking to buy a house in Phoenix. Having spent 30 years of his life in the city before moving 90 miles away, the father of two misses the proximity to family and friends, as well as the easy access to child care and healthcare services.

The problem is, McDonough and his wife currently have a 2.99% interest rate on their 30-year mortgage. They almost went into contract on their dream home in January, but their hearts broke when they realized how much of a stretch it would be to afford the house at today’s interest rates.

Though the 30-year mortgage rate fell to its lowest level in four months this week, the current average rate of 6.77% would still translate into a significant hike in monthly payments for the couple.

“It’s tough to give up that low a mortgage rate, even though we don’t necessarily like where we live,” said McDonough, who lives in Prescott Valley, Ariz., north of Phoenix. “I keep reading that that’s a historical thing [and] it might never happen again, so it just makes you second-guess yourself.”

Buying a house of comparable value would push up the couple’s monthly housing costs by at least $500, McDonough said. So the McDonoughs plan to wait and see how far interest rates drop before getting back into the housing market.

Their strategy might just pay off. Mortgage rates are poised to come down, as the likelihood of a Federal Reserve rate cut grows amid signs that the U.S. economy could be slowing down. Meanwhile, political uncertainty—sparked by the recent assassination attempt on former President Donald Trump, the upcoming November presidential election and unease over the direction of monetary policy, mortgage rates and home prices—has also spooked some would-be home buyers.

Taken together, these factors are prompting some buyers to pause and wait for more certainty before acting. But is it really better to wait, or should people buy homes now before falling interest rates bring more competition to the market?

That depends on whom you ask.

The case for waiting to buy a house: more supply and lower prices

A financial planner will tell you to do what’s best for you.

“I get this question a lot from my clients, especially lately, and my answer to them is to wait,” Nasha Knowles, a certified financial planner with Equitable Advisors, told MarketWatch.

With low inventory of homes for sale and high mortgage rates for now, why rush? If rates do fall on the back of the Fed cutting rates, “I will recommend that the home buyer purchase to take advantage of lower mortgage rates, which in turn equates to lower mortgage payments,” Knowles said.

Waiting also has another benefit: Rising housing inventory is causing prices to moderate and even fall in some metropolitan areas. The median price of a resale home hit $420,000 in May, an all-time high, according to the National Association of Realtors.

With the prospect of slowing home prices and lower mortgage rates, “it would be in the buyer’s best interest to wait,” Knowles said, “especially if there is no compelling situation that is requiring them to move immediately.”

The case for buying a house now: beating the crowd

Trying to time the market when it comes to home values or interest rates is a “precarious, possibly foolish strategy,” Eddie Blanco, the chairman of the board-elect of the Miami Association of Realtors, told MarketWatch.

“No one can accurately predict market fluctuations with certainty,” Blanco said. Instead, buyers should consider buying a house based on their long-term goals and personal circumstances, he said.

Lawrence Yun, chief economist at the National Association of Realtors, told CNBC this month that first-time home buyers should consider buying now, while the 30-year rate is at 7%, before falling rates invite more competition.

Bright MLS’s chief economist, Lisa Sturtevant, echoed that sentiment. “There are definitely opportunities for prospective buyers to get into the market now before rates come down this fall—if they can,” she told MarketWatch.

Sturtevant argued that rising inventory will lead more sellers to negotiate and offer concessions, but added that prices may not fall significantly in the coming months. “So there is no reason to think waiting will mean getting a big price break later in the year,” Sturtevant said.

Which option is best for you?

For some prospective home buyers, buying now simply isn’t possible, with home prices at record highs in many markets and mortgage rates still near 7%.

If you’re able to afford a house at the current mortgage rate of close to 7%, go ahead, because “you can always refinance the mortgage to a lower-rate loan in the coming years,” Melissa Cohn, regional vice president at William Raveis Mortgage, told MarketWatch.

On the other hand, “if you can’t afford the payments with today’s mortgage rates, it is probably best to wait until you are comfortable with the payment,” Cohn said.

But waiting also comes with a few risks: Home prices, and hence monthly mortgage payments, may be a lot higher in the coming months—and the U.S. economy may be in different shape, Cohn said. “The result of the election could bring inflation back into the picture, pushing rates up in spite of the Fed’s actions,” she said.

A home buyer’s struggle to navigate the real-estate market

McDonough, the Arizona homeowner, knew the local real-estate market. He had bought his first house in Phoenix in 2012, and the second in Prescott Valley in February 2020, right before the COVID-19 pandemic hit. In 2021, he refinanced the 30-year mortgage rate on that home to 2.99%.

Still, he and his wife aren’t sure about their next move. “It felt like a great deal, but now we feel locked,” McDonough said. “Do you really want to give up this great deal? … When you’re talking about a sizable purchase of over half a million dollars, that’s a lot of money, especially over the life of a loan.”

The house’s value has also appreciated considerably, from $368,000 to nearly $600,000, according to a rough estimate from online brokerages, McDonough said. But “the bottom line is still the bottom line: [One] can’t just magically make numbers work if they don’t work,” he added, referring to the couple’s conclusion that buying a new home would increase their housing costs too much.

On top of uncertainty over monetary policy, the political climate has also unnerved the McDonoughs. A change in presidential administration could affect the real-estate market: For example, a newly installed Fed chair could change course on monetary policy, which would impact home prices and mortgage rates.

“There’s a lot of uncertainty with the market that makes us a little squeamish,” McDonough said. “It makes me nervous right now to do anything.”

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