There’s an argument to be made that buyers shouldn’t wait for rates or prices to drop, and to stay in the market even as affordability looks strained.
AP
Contrary to what many are saying, it might not be a bad time to buy a house.
That’s because buyers waiting for rates to drop may be waiting a long time.
When mortgage rates do go down, competition and demand will come roaring back.
By many metrics, the US housing market has never been more unaffordable, and all of the prevailing wisdom right now says buyers should wait it out, either for mortgage rates to drop or prices to come down.
And yet, there’s an argument to be made for getting in now if you can find something, even amid 20-year high mortgage rates and stubbornly high prices.
Mortgage rates at 8% have sidelined a good portion of the competition. While it might not seem like it, the current landscape might be more of a buyer’s market than in recent years, particularly compared to the height of the pandemic when sellers could demand any contingencies be waived and buyers were snapping up homes sight unseen.
More importantly though, the lack of competition now means that when borrowing costs do ease, buyers can expect a flood of pent up demand to wash over the market.
“The days of the 2%-3% interest rates are never going to come back. Forget about that. But they will come down,” “Shark Tank” investor and real estate mogul Barbara Corcoran said in a post on Instagram this week.
“The minute they drop…the whole world’s going to jump back in the market. There’s going to be no houses around, and prices are going to go up by 10%, or even 15%. So don’t get out of the market. This is the very best time.”
The Corcoran Group founder’s estimate for price increases when rates drop is on the high end, but other experts agree that costs might not come down anytime soon. Other real estate experts are forecasting a more mild increase in home prices once mortgage rates ease, with a slight boost of about 1%-2%, National Association of Realtors chief economist Lawrence Yun told Insider previously.
But buyers who remain persistent in the current market could end up finding good opportunities, Redfin chief economist Daryl Fairweather said. Once mortgage rates pull back, there will likely only be a small period of improved affordability before prices jump, she predicted.
“If you wait and you’re really trying to time it for interest rates, maybe you can get a better rate later on when rates fall, but it’s really hard to time that, because that’s what everyone’s going to do,” Fairweather said. “The market will correct for that and prices would go up and in such a way that mortgage rates aren’t enough to make it more affordable.”
In the meantime, home prices could in the near-term even see a modest drop, Fairweather said, thanks to high mortgage rates crushing buyer demand.
High mortgage rates are the new normal
That message doesn’t appear to be getting through to prospective homebuyers, who have made themselves scarce as mortgage rates have continued their steady rise in 2023. Existing home sales in September plunged to a seasonally adjusted rate of 3.96 million homes a year, the slowest pace of sales since 2010, according to NAR data.
But experts say that high mortgage rates are probably here to stay for some time, and even if they drop below their current elevated levels, a return to the days of 3% is unlikely. This is especially true as the Federal Reserve maintains its outlook for higher-for-longer interest rates to keep a lid on inflation.
Fairweather sees mortgage rates staying where they are until the Fed begins to cut rates in mid-2024. That could cause mortgage rates to ease around 100 basis-points next year, dropping as low as 7%.
“I think that it’s potentially a good time to buy, but there’s still risk in the market,” Fairweather added.
Over the near term, most experts still expect housing affordability to remain strained, especially when compared to pre-pandemic standards. Incomes would need to spike 55% or mortgage rates would need to drop by 4 full percentage points to return the market to pre-pandemic affordability conditions, according to one industry executive.
But overall, the message from experts boils down to: don’t try to time the market. Buyers waiting for something to change might be disappointed, and there’s no telling when affordability metrics might improve. With that in mind, the old advice still stands—buy when and what you can afford.