The U.S. real estate market has been challenging since the pandemic started. Homebuyers have struggled to find affordable homes. During COVID-19, low mortgage rates were common, but home prices surged due to limited supply and high demand. As rates increased post-pandemic, homebuying became even more difficult. However, recent drops in mortgage rates bring a glimmer of hope for potential buyers.

Lower Mortgage Rates: A Mixed Blessing

Mortgage rates have started to decline, offering hope to many buyers. This shift could make it easier to buy a house. However, reduced rates might also bring challenges. The falling rates can increase demand, leading to a rise in homebuyer competition.

Higher Demand, Higher Prices

When rates drop, many buyers rush to take advantage. However, as more buyers enter the market, prices could rise. This increased demand may offset the savings from lower mortgage rates.

“Homebuyer competition will rise as mortgage rates fall,” warns real estate broker Sean Adu-Gyamfi. “Many buyers regret missing out on the low rates during the pandemic. They won’t want to miss another chance.”

Buyers waiting for lower rates may find themselves in bidding wars, competing with others who are also ready to buy a house. Unfortunately, if the housing supply remains limited, prices could continue to climb.

Inventory May Not Rise Fast Enough

While lower mortgage rates can motivate more buyers, housing supply may not keep up. The U.S. Department of Housing and Urban Development reported that construction of new homes dropped by 14.8% in July 2024. Although the supply of existing homes increased, it’s still below the level needed for steady price growth.

Could Lower Rates Increase Inventory?

Lower mortgage rates might do more than create new buyers. They could also motivate homeowners to sell. Many owners secured low rates during the pandemic and have hesitated to move due to higher borrowing costs. But if rates continue to fall, more homes might hit the market.

According to mortgage advisor Beverly Hankinson, lower rates could push homeowners to upgrade or relocate. This could increase inventory and help balance out the rising demand. However, the market is unpredictable, and it’s unclear whether supply will meet demand.

How to Prepare for the Market Shift

With uncertainty around both demand and supply, buyers need to be ready. Getting finances in order is key. Here are a few steps to take now:

• Set a budget.
• Get pre-approved for a mortgage.
• Research local homes to understand what’s available.

The Bottom Line

The time to buy a house is when you’re financially prepared. You can act now and refinance if rates drop further. Alternatively, you can wait for rates to fall, ensuring you’re ready with a competitive offer.

Either way, the goal is to buy a home you love without overextending your budget.

The real estate market has presented difficulties for many homebuyers, and many buyers are wondering what would happen after a rate cut. High mortgage rates and low housing inventory have made it hard for people to buy a house. These high costs have caused many potential buyers to delay their dreams of homeownership.

Thankfully, some economic changes may bring relief. Inflation has decreased, and the job market has slowed. As a result, the Federal Reserve is expected to cut rates soon. These changes could lower mortgage rates and make it easier to buy a home.

What to Expect with Rate Cuts

The Federal Reserve’s rate cuts could reduce mortgage rates, benefiting potential homebuyers. If rates drop, borrowing costs will become more manageable. Understanding how these rate cuts may impact a $600,000 mortgage is important for those looking to take advantage of lower mortgage rates.

Current Mortgage Payments for $600,000 Loan

At present, the average rate for a 30-year fixed mortgage is 6.41%, while a 15-year fixed mortgage is 5.78%. Assuming a 20% down payment of $120,000, here’s what monthly payments would look like for principal and interest:

• 15-year mortgage at 5.78%: $3,993.68 per month
• 30-year mortgage at 6.41%: $3,005.57 per month

These estimates do not include property taxes or homeowner’s insurance, which may vary based on location.

Impact of a 0.25% Rate Cut

If the Federal Reserve cuts rates by 0.25%, mortgage rates may also drop by a similar amount. Here’s how that could affect monthly payments:

• 15-year mortgage at 5.53%: $3,929.65 per month
• 30-year mortgage at 6.16%: $2,927.40 per month

This means a savings of $64 per month on a 15-year mortgage or $78 per month on a 30-year mortgage.

Impact of a 0.50% Rate Cut

If multiple rate cuts lead to a 0.50% reduction in mortgage rates, the savings become more significant:

• 15-year mortgage at 5.28%: $3,866.19 per month
• 30-year mortgage at 5.91%: $2,850.13 per month

Borrowers could save $127 per month on a 15-year loan or $155 per month on a 30-year loan.

Should You Wait for Lower Rates?

The idea of waiting for lower rates can be tempting, but it’s important to consider several factors.

• Monthly payments: Lower rates reduce monthly costs, making homeownership more affordable.
• Buying power: With lower rates, you might afford a more expensive house while keeping payments manageable.
• Increased competition: More buyers enter the market when rates drop, possibly leading to bidding wars.
• Rising home prices: Lower rates can cause home prices to rise due to increased demand.
• Uncertain timing: Waiting for rate cuts is risky, as the timing of rate changes is unpredictable.
• Opportunity cost: If you continue renting, you lose out on building home equity.

The Bottom Line

A rate cut may save you between $64 and $155 per month on a $600,000 mortgage. Whether you buy now or wait for lower mortgage rates depends on your financial situation. If you can afford current payments, it might be wise to act. However, if even a small rate cut makes a significant difference, waiting could be a better choice.

Ultimately, being financially prepared is key to making the right decision when buying a house.

All quoted rates/payments are based on OptimalBlue’s © pricing engine from 9/13/2024.
They are based on averages and are in no way guaranteed; your rate/payment may be
different. This is not a commitment to lend.