The housing market has been tough for hopeful buyers over the last few years, but with mortgage rates now declining, the market could potentially see a rise in demand.
In early 2022, the Federal Reserve hiked its benchmark rate in an effort to temper inflation. This led mortgage rates to balloon to 8% in late 2023, pricing out potential buyers to the sidelines. In addition, the lack of inventory also led to bidding wars, causing home prices to climb.
Today, mortgage rates have fallen to 6.49% for the 30-year term, the lowest level recorded in over a year, according to Freddie Mac. Mortgage rates, however, are still double what they were in 2021.
Inflation has also showed signs of cooling. The Fed has signaled plans to cut their rates in the fall. While this does not directly influence mortgage rates, both typically move in the same direction. This could open a window of opportunity for buyers hoping to secure a more affordable mortgage loan. However, experts believe waiting may not be the best choice.
Why Experts Recommend Locking in a Mortgage Interest Rate Now
For starters, lower mortgage rates means more buyers would come back to the housing market as they can now afford homes for the same monthly payment. Lower mortgage rates would also open up options in higher price ranges or better neighborhoods that were previously out of a buyer's reach.
That being said, lower mortgage rates also mean more competition in the market, especially when buyers who have been waiting in the sidelines re-enter. And with the shortage of supply in the market, a sudden rise in demand could spark bidding wars.
"They can actually pay more for a home than they otherwise would," Realtor.com senior economist Ralph McLaughlin told Fox Business. "When they go to bid on a house, they can bid up to price more than when mortgage rates were higher."
Furthermore, the rise in demand could also lead to another price growth in the market, which could impact affordability, Telsey Advisory Group Senior Managing Director Joe Feldman told the outlet.
For homes to become more affordable, McLaughlin noted that there would have to be a surge of homes for sale or the median income would need to outpace the growth of home prices.