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.
