With Mortgage Rates Dipping, Is Now a Good Time to Buy a House?

Buying a house at what might be the top of the market could be a big risk, but with mortgage rates still fluctuating and another rate cut due from the Federal Reserve, you might be wondering if now is a good time to jump back in, or are you better off waiting a bit longer?

While the 30-year fixed mortgage rate was 6.72% for the week ending October 31, 2024, according to the St. Louis Federal Reserve, the Federal Reserve is expected to cut interest rates by a quarter-percentage point this week, which may provide some more respite for potential buyers.

In 2023, the spike in mortgage rates slammed the brakes on what was a buoyant housing market just two to three years previously. Mortgage rates plummeted to all-time lows below 3% during the 2020-2021 COVID-19 era in tune with accommodative government policy, including a Federal Reserve that set the Fed funds rate at an all-time low. But this led to an inflationary environment that resulted in the Fed raising interest rates 11 times in an effort to counter the spike in prices.

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Home prices surged as well, mortgage rates rose and new inventory dipped, causing many people to sidestep the housing market. After pausing the rate-hiking campaign earlier in 2024, the Fed has now started to cut rates and is expected to continue doing so into 2025.

While not directly related, lower interest rates can influence mortgage rates, meaning the expected decline in the fed funds rate should further bring down mortgage rates going forward.

How the job report impacts rates

The Bureau of Labor Statistics (BLS) released its latest unemployment report, and it doesn't look as good as some predicted. U.S. employers added 142,000 jobs in August, a weaker-than-expected showing for the second consecutive month. June and July unemployment numbers were also revised down, denoting an even weaker picture of the labor market in early summer. The good news is that both the number of unemployed people (7.1 million) and the unemployment rate (4.2%) changed little in August.

The disappointing jobs report was likely a factor in the Fed cutting its key interest rate at their September 2024 meeting. In response, mortgage lenders were expected to start offering lower purchase and refinance rates, which would help homebuyers lock in better deals.

Just the same, there is no doubt that houses are overvalued. Add in historically high mortgage rates and sluggish demand, and it's possible we'll have a stagnant, even negative, housing market for the foreseeable future. So, should you buy now near the top of the market or wait until things cool off?

Should you buy a house now or wait?

So what should a potential homebuyer do? Buy a house now or wait?

Housing prices are still elevated with the median sale price for an existing home of $429,990, according to the Fred Economic Data. That's a decrease of 1.3% compared to last year. Even so, 81% of consumers still believe it’s a bad time to buy a house, according to the Fannie Mae Home Purchase Sentiment Index released in July 2024.

If you’re a buyer, that’s a nightmare. If you're a homeowner, it may be a reason to celebrate. Either way, it should give you pause.

Although higher interest rates may make it more challenging for first-time home buyers to qualify for a mortgage, this segment of the buying population made up 32% of sales in the past 12 months, numbers that have remained consistent over the past 10 years, according to the National Association of Realtors (NAR).

Although buying builds home equity and offers stability, as well as the freedom to renovate and make changes to fit your style, renting is still cheaper than buying in all 50 states. If you have to move, maybe consider renting for a while until the market cools or interest rates decrease even further.

Keep in mind that renting has also become challenging, however, with the supply of apartments increasing by only 0.6% since January 2024. Plus, only 39% of renters make enough money to afford the median-priced apartment, as a recent report by Redfin shows.

In other words, there is no easy answer to renting, buying now or waiting, and it may just come down to running the numbers.

Buy now if you need to move

Not everyone has the luxury of waiting until the housing market cools to buy a house. Maybe your job has transferred you across the country, or you're pregnant, and the one-bedroom apartment no longer works.

While data can change quickly, homes spent 53 days on the market, the slowest August in five years. This is seven days more than last year and three days more than last month, according to data from Realtor.com.

Even though renting is always an option, if you need to move and feel financially ready for homeownership, meaning you can qualify and meet the monthly mortgage payments and other expenses, it may be better to buy now versus wait. You can begin building equity while taking advantage of tax deductions from the interest you pay on a mortgage, home-related renovation costs and property taxes.

Christopher Davis, assistant vice president of home lending at Navy Federal Credit Union, says if you need to move, “Make sure the monthly payment fits your budget and consider the price of a new home carefully when shopping around. Also, be selective when determining which features are important. You may have accumulated large amounts of equity in your current home, giving you desirable options for your new home.”

Buy now if you plan to stay put

If you intend to stay in your home for a long time, buying now rather than waiting might be smart. That’s because, at the current rate of home appreciation, the house you pass on now will likely cost you more in the future.

Besides, right now you’re building substantial equity in your current home, and even if house prices fall, you won't be impacted because staying put for the long term gives the market time to rebound when it is time to sell.

Beyond the purchase price, you’ll likely also pay thousands of dollars in closing costs when you buy a home. To justify those costs, it’s best to be reasonably confident you won’t be moving anytime soon. What’s more, selling a home very soon after buying can have serious tax implications.

Buy now if you’re financially stable

The best mortgage deals are available to people with the best credit scores. According to the Federal Reserve Bank of New York, the median credit score for mortgage borrowers in the third quarter of 2024 was 770.

To qualify for a mortgage, you must demonstrate that you are at low risk of forfeiting on your monthly payments. It is also important to have enough in the bank for a down payment and closing costs — which usually range from 2% to 5% of the value of your mortgage and are paid in addition to your down payment.

Wait if you can’t afford to buy

As obvious as that sounds, if you can’t afford the monthly payments, let alone the closing costs, a down payment and other homeownership costs, then it might not pay to buy — at least right now, especially since renting is now less expensive than buying.

Wait until your credit improves

If you need help qualifying for a mortgage at a good rate because of a low credit score, scanty employment, a high debt-to-income ratio, or too much outstanding debt, it may be better to wait.

However, keep in mind that many experts predicted home prices would fall in 2023, along with lower interest rates, but neither happened. So now might be a good time to work on your finances so that when prices and rates do drop (and we hope they will), you’ll be ready.

Wait if you can’t find a home

The NAR reported that August sales of existing homes dropped 2.5% in August to 3.86 million units (seasonally adjusted annual rate) and were down 4.2% from one year ago.

"We're seeing a slow shift from a seller's market to a buyer's market," said NAR Chief Economist Lawrence Yun, as reported on the NAR website. "Homes are sitting on the market a bit longer, and sellers are receiving fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitively rising nationally."

As existing home sales stall out, you may struggle to find a home that meets your needs at a price you can afford. Instead of compromising your wish list, consider waiting until inventories increase.

Key takeaways

• The 2024 housing market makes it challenging for prospective buyers to buy at this time unless you are paying in cash and credit isn’t an issue.
• If your credit score is strong and you have enough cash to cover your monthly mortgage payments, down payment and closing costs, buying now might still be smart.
• If you plan to stay in your home for a long time, even at higher prices, now might be a good time to buy to gain equity.
• If your finances are not ideal, or if home values in your area are declining, it might be better to wait.

Bottom line

There's no right or wrong answer to whether now is a good time to buy a home. That decision is personal and depends on a number of factors. Plus, there’s no way to know what the future will bring for the housing market and mortgage rates.

That’s why it's important to weigh your options and make a decision that makes sense for both your finances and your family.

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