I have been predicting that we will see lower mortgage rates soon, and it appears that my forecast is starting to get a little clearer. I truly thought we would be closer to 6% by now, but our friends at the Federal Reserve continued to chase the inflation ghost, which I have stated was clearly not there, and now the Federal Reserve may be seeing the same thing. The Federal Reserve met Wednesday and stated that they were not moving rates this month and that some now believe that we may not see another rate hike for some time. I genuinely believe that they now see what we have been saying for the past several months that they have again overreacted with their historic number of rate hikes, bringing the overall economy to a screeching halt. Housing sales have fallen notably this year due to a lack of inventory and the highest mortgage rates in the past 20 years. The combination of rising home prices and rates made affordability out of their reach for many. I have stated before that I thought 30-year fixed rates, on a national average, could move below 6% by the end of Q1. I still believe that now and that forecast may need to be tweaked as we may see that happen earlier than later. If we continue to see prices at the consumer level continue to fall, don’t be surprised that we see a FED cut as soon as their February 1st meeting in 2024.
Should I buy now… or wait for rates to fall? This is an excellent question and a question that I get asked often. The answer is simple: if you believe that rates will fall below 6% in the near term, buying now will most likely get you the lowest price that that house may be at over the next several years while interest rates are at their current high levels. While waiting for rates to decline will possibly save you money on a monthly payment, the question is: Will it? I say that because when rates fall, demand for houses will rise. Our inventory issue will still exist for the most part, maybe a little better, but it will still be there, so the age-old supply and demand formula will kick in. Housing prices will rise again, mitigating some of the expected drop-in rates. However, if you buy now before prices increase again due to falling rates, you will lock in that house price and possibly refinance your rate to an even lower rate later in the year if my forecast is correct. If your sales price was $600,000 now and you put 20% down with a mortgage rate of 7.000%, your payment for a 30-year loan would be about $ 3,200 per month without taxes and insurance.* But if you wait and, let’s say, mortgage rates fall to 5.75%, but the price goes back up to $640,000, your payment would be around $3000 per month without taxes and insurance. Yes, you might save $200 per month, but you lost $40,000 in potential equity in a less than 12-month time frame. I think saving/making $40K is most likely the best choice, especially when you might be able to refinance your 7% mortgage to a lower rate and save the $200 per month, which would then be a win-win. While I do not believe we will get back to rates below 4% in the foreseeable future, a rate of 5% in the next 18 months is certainly possible. If the “buy now” buyer bought today and refinanced at 5% down the road, their payment would be closer to $2600 per month without taxes and insurance. The math doesn’t lie. Buying now could be your best option if you want to take advantage of what I believe may be the lowest home prices for the next several years.
Remember… The BEST RATE… IS A LOCKED RATE… with a float down… ask me about our program that allows you to lock your rate and then float down if rates move lower.
Make sure you (or your buyer) get pre-approved before looking at homes so we can determine if you are looking in the correct price range and have you armed to submit an offer with a pre-approval letter!
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*Not an advertisement of rates offered by BankSouth Mortgage. For illustration purposes only.
Blog post date: Thursday, December 14, 2023