Key Takeaways
- The average home sales price was $425,000 in September, according to Realtor.com’s latest monthly housing report. With a 20% down payment and an interest rate of 6.11%, the monthly payment would be $2,062 (not including taxes or home insurance), $88 cheaper than in August.
- If mortgage rates drop a full percentage point in 2025, you could save about $214 per month on your mortgage payment.
- Waiting to buy a house to lock in a lower mortgage rate may not be worth it considering potential home appreciation, which Goldman Sachs expects to reach a rate of 4.5% this year and 4.4% in 2025.
- The right time to buy a house will always depend on your needs, goals, and the housing market at that time.
Last month, the average 30-year fixed mortgage rate hit a two-year low of under 6.00%. While that average has ticked up since then—the average 30-year new purchase mortgage rate was 6.57% Monday—it’s still 51 basis points below the summer peak of 7.08%.
Meanwhile, the median new home sales price in September was $425,000, according to Realtor.com. That’s down from $429,990 in August, but still near all-time highs. So, is now a good time to buy a house, or is it better to wait for rates or home prices to fall further?
The Federal Reserve cut its key interest rate by 50 basis points in September, and board members expect more cuts into 2025. While the Fed doesn’t directly affect mortgage rates, it can influence what lenders charge borrowers. So does that mean more affordable homes in the next few months?
How Much Could I Save by Waiting for Mortgage Rates to Drop?
The average mortgage rate in September was down to 6.11% from 6.39% in August, according to Zillow data provided to Investopedia. Assuming you put down 20% for a 30-year mortgage with a fixed rate of 6.11%, your monthly payment on a $425,000 home would be $2,062 (not including taxes or home insurance).
Now imagine that in one year, the average mortgage rate is a full percentage point lower (5.11%). In this case, you could buy the same house and have a monthly payment of about $1,848 (all else equal). That’s a difference of about $214 per month or $2,568 per year—not much when you consider the home’s potential appreciation over a year, which could easily exceed the payment savings.
For example, if U.S. homes appreciate by 3%, as they did between the second quarters of 2022 and 2023, the same house would cost $12,750 more. Thankfully, the trend seems to be going in the opposite direction, with the average sales price for a home being less in 2024 than in 2023. Though with lower mortgage rates, there is no guarantee that housing prices will also decrease or stay the same.
“You’re better off buying now and then refinancing in a year when rates are down,” said Cindy Regan, Originating Mortgage Branch Manager at City First Mortgage Services, LLC. “Worst case scenario, you got about 12 higher payments.”
Where Are Mortgage Rates and Housing Prices Headed in 2025?
It’s impossible to say precisely where mortgage rates are headed, but most experts predict a steady decline through 2025.
“While rates are expected to bounce around a bit, we expect them to be in the low 6% range by year’s end,” Realtor.com Chief Economist Danielle Hale said in an article published on Sept 20. “The Realtor.com forecast also anticipates that mortgage rates will move lower, perhaps into the upper 5.00% range by the end of 2025.”
Meanwhile, if mortgage rates drop, expect upward pressure on home prices as lower rates tend to increase demand by attracting more buyers. This is what happened during the COVID-19 pandemic. With mortgage rates at a record low of 2.00% to 3.00%, buyers flooded the market, leading to one of the most rapid increases in U.S. home prices in history.
Now that interest rates are expected to fall again, Goldman Sachs expects U.S. home price appreciation to reach 4.5% this year and 4.4% in 2025.
The Right Time to Buy a House Depends on the Buyer
Ultimately, there’s no blanket answer to whether you should buy a house now or wait.
For one, it depends on your personal needs and goals. For example, you may need a home for your growing family now and be willing to refinance later. Alternatively, you may prefer to wait so you can save for a larger down payment.
“It really depends on the buyer,” said Lisa Lia, attorney at Cadence Title Services. “But at this point, I would wait a little longer. Although the interest rates have come down, we haven’t seen that much softening in the prices of real estate, and I think there’s more to come.”
Future home prices will vary by market, too. The most expensive metro area for buying a home, according to Realtor.com, is San Jose, California, where the average monthly payment is nearly $7,000. Excluding California, the Boston area has the highest monthly payment, at $4,094. In contrast, Pittsburgh was the cheapest metro area, with a typical monthly payment of $1,184, followed by Cleveland, at $1,271.
“Some areas are still booming and hot and experiencing a shortage,” said Florida-based Realtor Jessica Peterson. “Some are totally flipped. They are tanking in value.”
Overall, the nationwide housing shortage and pent-up demand will likely keep most home values stable and growing for the foreseeable future. And a 1 to 2 percentage point drop in mortgage rates may not make up for the higher home price that could come with putting off buying.
If you can buy now with a higher rate and refinance later, you may end up saving money in the long run, especially if home prices in your area rise in value in 2025.