And just like that, another season is coming to an end. Summer went by way too quickly. If you haven’t been watching the real estate market, here’s what you need to know heading into fall. At the last Federal Reserve meeting, they decided to increase the national lending rate by 0.25%. In turn, mortgage rates also rose. Currently, we’re sitting around 7.25% for a 30-year conventional and 7% for FHA.
Average 30 Year Conventional Mortgage Rates
Where do mortgage rates go from here? At the beginning of 2023, a lot of the experts said rates will rise early in the year and then they should come back down towards the end of 2023. Well the way things are going, that prediction doesn’t look likely. We are already almost three-quarters of the year done and rates are still climbing. At this point, rates probably won’t come down until sometime in 2024.
Should you wait for rates to come down in order to buy? NO! No one can know for certain when or how much rates will fall. Stop worrying about things that you cannot control such as rates. Worry about the things that you can control. Such as your finances, your credit score, and how you can buy a home right now. One thing we know from history is that home prices over the years continue to increase. Interest rates on the other hand tend to go up and down.
If you’re planning to buy a home to live in for a long term, greater than 5 years. Then you will likely benefit from purchasing that home today, at today’s prices. Rather than try buying a home 5 years later even if rates have come down, the price to buy that home may not. Your decision to wait may end up costing you more and limit your ability to buy a better home/area. In addition, if you buy that home today vs. 5 years from now, you have already paid it down for 5 years, creating even more equity.
Other reasons you should buy now even when rates are up. Whenever rates rise, we tend to see a reduction in buyer demand. This means a couple of things for you, less competition can translate to fewer bidding wars and inventory sitting longer on the market. This in turn can lead to price reductions and buyers actually having the ability to negotiate for things like inspection, seller closing cost credits, and or rate buydowns.
On the other hand, if you choose to sit it out and wait for the rates to drop before getting in the market. Guess what? You and all those other buyers are also waiting for the same thing to happen. And in an already low supply inventory. When all those buyers jump back in the pool, what do you think’s going to happen to the market again? That’s right, we’ll be right back into a buying frenzy, and bidding wars, and sellers will regain negotiation power. So which sounds better to you? Buying a home when rates are a little higher, but you at least have the power to offer less, get a discount, get an inspection, and potentially seller credit or rate buydown? Or buying a home during a crazy seller’s market where you have zero power and you have to overbid?
Now if you’re in the group that says you’re waiting for a crash or prices to come down. That is highly unlikely to happen. Sadly this is the new normal. Supply and demand are what really control home prices and whether or not we’ll see a crash. 90% of homes have a mortgage today, that is less than 6%. The truth of the inventory problem is that if sellers don’t need to sell, then they will continue to stay put and enjoy their low-interest rate mortgages. The other problem is that we just cannot bring enough new inventory online in the places that need it the most. The process for builders to secure lots and permits, in order to build can take a while as well. We simply don’t have time to wait for builders to catch up.
In summary, until supply overtakes demand, prices will not drop. Rates will continue to fluctuate however, the prices of homes will continue to increase based on the market conditions discussed. If you still have a need and the finances to buy a home then just do it. Do not let the things that you can’t control stop you from getting your home.