So, you’re waiting for mortgage rates to drop? Well, my friend, you’re not alone. Ever since mortgage rates skyrocketed from those pandemic-era lows, homebuyers have been in quite the pickle, dealing with rising home prices and inflation that won’t quit. But here’s the good news: the clouds may be parting, and there’s a ray of sunshine on the horizon.
Inflation has been behaving itself for the past three months, and mortgage rates have taken a tiny step down as a result. Throw in a less-than-stellar jobs report, and rates dipped even further to a 15-month low. And the cherry on top? The Federal Reserve is hinting at a rate cut this fall, which could make mortgage rates drop even more. Sounds dreamy, right?
But hold your horses! Before you sit back and wait for those rates to plunge, let’s take a closer look. How much could you really save? And more importantly, is waiting it out the best strategy?
Here’s What You Might Save by Waiting for Rates to Drop
Now, let’s be real: rates might not fall as much as you’re hoping. Sure, if the Fed lowers rates, mortgage rates will likely follow suit. But let’s not get carried away with visions of sub-4% rates.
“Rates have already started to fall ahead of a potential Fed rate cut,” says Debra Shultz, VP of Lending at CrossCountry Mortgage’s The Shultz Group. “The economy is slowing, inflation is dropping, and so are mortgage rates.”
But how low will they go? That’s the million-dollar question.
The Fed might reduce its rate by a teeny-weeny amount—think 0.25% to 0.50%. That’s about the size of your morning latte if you’ve switched to decaf. And the chances of this happening at their September meeting? It’s a coin toss—50-50. So don’t expect mortgage rates to take a nosedive.
Industry experts seem to agree. Fannie Mae expects the year to end with an average rate of 6.7%, and the Mortgage Bankers Association is even more optimistic at 6.6%. Beyond that, rates might keep inching down in 2025, potentially dipping by 1% or more. But don’t hold your breath—2025 is still a long way off!
It Depends on Your Loan Amount
Now, even if those 2024 rate cuts are as tiny as a baby’s first steps, they can still help you out—especially if you’re looking at a hefty loan amount. With low housing supply and prices continuing to rise, that could be a lot of you.
“As home prices have climbed, so has the average loan balance,” says Darren Tooley, a loan officer and sales manager at Union Home Mortgage. “The savings on a $450,000 loan from a 0.5% rate reduction will be way more noticeable than on a $175,000 loan.”
He’s got a point. On a $450,000, 30-year loan, dropping from 7% to 6.5% could save you about $150 a month. Over the life of the loan, that’s nearly $59,000! But if you’re borrowing $175,000, the savings shrink to $58 a month and about $21,000 in interest. Still nice, but not exactly a trip to the Bahamas.
Trying to Time Your Purchase? Let’s Think Again.
If you’re thinking about waiting until 2025 when rates might be lower, here’s something to chew on: it’s not guaranteed. The MBA predicts a 6.2% rate by the end of next year, while Fannie Mae is eyeing a 6% rate. But as John Aguirre, a mortgage broker at Loantown, wisely points out, “There’s no way of knowing how low rates will go.”
And there’s another twist in the plot. If rates do drop, more buyers will rush into the market like it’s Black Friday, pushing prices up even further. So much for scoring a deal.
“Buyers have been sitting on the fence for years, waiting for rates to fall,” says Shultz. “Once they do, it’s game on. More buyers, more bidding wars, higher prices.”
That’s why the experts don’t recommend trying to time the market. Instead, focus on when it’s right for you—your budget, your life, and your dreams. If the numbers work out, go for it. You can always refinance later if rates drop even more.
So, why wait? The perfect home might just be out there waiting for you.