Last week, Fed Chairman Jerome Powell announced that “the time has come for policy to adjust”, adding that inflation’s decline and the cooling labor market are contributing factors. However, we’ll still have to wait for the actual rate cut until the next Federal Reserve meeting scheduled for September 17-18.
What does this mean for home buyers and sellers?
For buyers, housing will become more affordable. As interest rates drop, buyers will find the potential monthly mortgage payments will be lower than when rates were at 7%. That’s great news for buyers who need lower housing costs. However, lower interest rates are often associated with home price increases. In markets with low supply, there is a higher likelihood of prices increasing. In markets with above average supply, an increase in buyer activity will typically reduce the supply before prices start to rise.
For sellers in markets with low supply and falling prices, lower rates can help stabilize falling values. And sellers in high demand markets should see an increase in activity and subsequently prices may start to tick up.
So, should you buy?
There are several potential benefits to buying now. You might secure a better price and more favorable contract terms before demand increases. If interest rates drop further, you can refinance to lower your payment even more. On the other hand, if rates rise again, you’ll have locked in a great deal at a lower rate. However, there are some drawbacks to consider. You might experience FOMO, wishing you had waited for a better home. Additionally, if rates drop and stay low, and inventory doesn’t shrink, then prices could fall, leaving you feeling like you overpaid.
I like the strategy of acting when the opportunity exists. If you are currently renting, and lower rates mean you can buy your first home, do it. The feeling of homeownership and the connection to community is, of itself, a huge positive. I’m less concerned about perfectly timing the market as if the investment aspect of real estate is the sole reason to purchase. Time IN the market (how long you own) will bring the benefits and security that come with having your own home.