Some say increased interest rates shouldn't impact your decision to buy a house and that you should buy now and refinance later when rates come back down. Others say the housing market will dip and better prices, along with better interest rates, are worth the wait.
So which is it?
Should I buy a house now or wait for mortgage rates and home prices to come down?
Every time interest rates increase and a previously blazing hot housing market begins to cool, aspiring homeowners wrestle with the question of buying now or waiting for a better price. Like many questions in the mortgage/home buying space, the answer depends on circumstances and priorities.
Attempting to time a market rarely results in the optimal outcome. If you are lucky enough to get it just right, more than likely you were just that - lucky. So many factors affect the housing market that trying to pinpoint each one and their impact on what you’ll pay for your new home is not possible. Budgeting for a monthly payment, comparing interest rates, and being pre-approved and prepared to pounce when the right home comes along are steps you can take to improve your chances of getting the best deal.
Buy Now and Refinance Later?
The tools on this website were built to help with the nuts and bolts of financing a home. How much home you can afford, what your monthly payment will be, and for how much you qualify are tangible figures you need to know before you buy a house. And those numbers definitely factor into which home you buy. However, like most decisions we make, emotion is a big factor. In many cases emotions and how we feel about a property matter as much, if not more, than the bottom line.
It’s for this reason the question posed in the title of this post simply depends on the family doing the buying. There is no way to know for certain if interest rates will fall back to pandemic levels. Just as there is no way to know if they’ll continue to rise. If you are in a position where you must buy a house, it doesn’t really matter. If rates fall in the future, you may be able to refinance to a lower rate, lowering your monthly payment. If rates go up, you’ll be happy you locked in when you did.
If you’re waiting for prices to fall because you’ve heard rates are up and the market is beginning to cool and you’re in a position where waiting is an option, perhaps it’s worth the gamble to try to get a better price. Like interest rates, there is no guarantee the market will see a pull back. Just as there is never a guarantee of appreciation when you buy a home.
One advantage in any market is most mortgage loans have fixed rates with no prepayment penalties. If rates go down after you’ve closed on your home, refinancing to the better market rate is usually an option. If rates rise after closing, fixed-rate borrowers now have a mortgage loan with better terms than new homebuyers.
Waiting for the Best Price
It’s normal to want to pay the lowest price for anything. Why should a home be any different? However, if we’ve learned anything during the COVID boom it’s that trying to squeeze a seller out of every dollar does not typically result in an offer accepted.
One advantage of financing a home is most mortgage loan terms are 30 years. A $20,000 price difference might mean only $150-$200 per month added to your mortgage payment. Homebuyers in this situation need to ask themselves if it’s worth losing a home to another buyer when the monthly payment would still be acceptable.
Trying to time a market is for speculators and investors. Most homebuyers do not fall into those categories. Yes, we all want the best price at the lowest interest rate, but that’s simply not realistic when your family needs a roof over their heads.
Buying a home is a huge decision and most likely the most significant financial undertaking of your life. It is stressful enough without attempting to predict housing and financial markets. The unfortunate reality is that the market is more difficult for buyers financially than it was even a few months ago. If you aren’t pressed and can wait to see what the future holds, there may be opportunities to buy at better terms than the market currently offers, but there are no guarantees.