Potential home buyers have been waiting for the Federal Reserve to cut interest rates, and it’s finally happened. However, if you’re looking to buy a new house, it might be prudent to wait a little longer. Though mortgage rates will be going down, it doesn’t mean it’s time to make a purchase.
Lower interest rates don’t necessarily equal lower housing costs
The Fed lowered interest rates by a half point in the face of rising unemployment and lower inflation. Interest rates rose from a low of 0.25% in 2022 to 5.375% in 2023. Now, they stand at 4.875%. Mortgage rates will follow suit, which means buying a house will be more affordable since monthly payments will be smaller.
However, demand for housing is still high, and inflation hasn’t cooled in that sector of the economy. Cutting mortgage rates could have the opposite of the desired effect. We could see a surge of home buyers trying to lock in mortgages, fearing that the Fed might raise the interest rate again. If this is the case, home prices will rise even higher, and you could end up paying more for a home than you would have before the cut.
Additionally, you might not want to lock yourself into a 20-year mortgage, even with the current rate cuts. According to CNN, there’s a good chance the Fed will lower rates even more this year. While mortgage rates won’t necessarily go too much lower, a little bit adds up to a lot over 20 years.
Buying a home is a significant decision that should align with your financial readiness and long-term plans. Before moving, consider consulting a financial advisor and monitoring market trends. Waiting for further rate cuts or a cooling housing market might be beneficial, potentially saving you more money over the life of your mortgage. Careful planning and patience can make a substantial difference in your overall investment.
