Do Dropping Mortgage Rates Mean It’s Finally a Good Time to Buy a House?

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Experts weigh in on whether buyers should take advantage of new rates.

Thomas J. Story

Mortgage rates dropped again this summer to a 15-month low, putting them back at numbers we saw in April of 2023. However, the rates are still higher than they were immediately before the pandemic, prompting some potential buyers to wonder when to buy a new home.

“According to Freddie Mac, in 2023, the 30-year fixed-rate mortgage nearly hit 8%, and now, the 30-year fixed-rate hovers around 6.5% and will likely trend down in the coming months as inflation continues to slow and the Fed cuts rates next month, as expected,” says Steve Nicastro, managing editor at Clever Real Estate. “For potential homebuyers, this means a slightly more affordable housing market with increased buying power.”

Here, experts share where the market is headed and whether buyers should pounce on these newly lowered rates or consider other factors when deciding when to buy.

How Big Is the Mortgage Drop?

A brief history is necessary to appreciate the decrease in mortgage rates. Before the pandemic, mortgage rates hovered at 5% on average. During the pandemic, they dropped to record lows under 3% before climbing to record highs nearing 8% as the housing market experienced a volatile swing.

During and after lockdown, Americans increasingly sought bigger living spaces after feeling cooped up for months. Many also shifted to remote work, which requires more home office space. As a result, the housing market began to favor sellers with high home prices and low inventory.

Eventually, this was combined with rising interest rates, which made sellers reluctant to part with their locked-in mortgage rates and made the barrier to entry extremely high for first-time buyers.

Now, with rates dropping, it’s important to have context. And Nicastro says this rate drop isn’t that big in the grand scheme of things when looking at rates themselves. “We’ve gone from having really expensive mortgage rates to expensive mortgage rates, and perhaps more importantly, housing prices remain elevated,” he said.

Instead, he believes the significance of the recent decrease is how it relates to the overall trend. “I think the current rate drop will be part of a slow, long-term trend of declining rates. While we may not see the 3% mortgage rates we had during COVID for a very long time—if ever again—it’s reasonable to expect mortgage rates to continue to fall,” he said.

““I wouldn’t be surprised to see mortgage rates down to 5-5.5% in 2025, and perhaps as low as 4-4.5% by 2026.” “

—STEVE NICASTRO

Nicastro adds that rates could drop more quickly if we enter a recession, but predicting that type of event is difficult.

Regardless, the downward trend won’t likely be smooth even as rates trend lower.

“Both the market’s anticipation of a rate cut and the cut itself have the potential to bring mortgage rates lower,” says Hannah Jones, a Realtor.com senior economic research analyst. “However, the path may be bumpy, and mortgage rates may be volatile as the market adjusts to incoming data, rate changes, and consumers’ responses.”

How Mortgage Rates Affect Your Search

When browsing listing sites, you see prices for the overall purchase of the home. However, these numbers are only accurate if you pay cash. If you need a loan to purchase the home, like most buyers, you’ll spend more than the price tag indicates once mortgage interest is factored in.

“Lower rates can increase a buyer’s pre-approval amount, boosting their purchasing power, and it allows them to make more competitive offers,” Nicastro says.

While the drops in rates might not be huge, they can have a significant impact on your wallet. “A 0.75% drop saves almost $350 a month on the monthly mortgage based on a $700,000 mortgage. That’s a whopping $21,000 over five years,” says Bill Kowalczuk, a residential broker at Coldwell Banker Warburg.

A lower interest rate could save you tens of thousands of dollars over the life of a 30-year mortgage, but those savings likely have far less impact on your situation than the daily costs associated with homeownership.

“Property taxes, insurance, HOA fees, utilities, and other maintenance costs are important considerations beyond the monthly mortgage principal and interest payments,” Jones says. “Hopeful buyers should get to know their budget and their local market to be sure they can find a home that is a good fit for both their lifestyle and their wallet.”

Should You Let Mortgage Rates Dictate Your Home-Buying Plans?

Low interest rates send flags up for savvy buyers, but are they reason enough to pull the trigger on a purchase? Some experts say yes, while most agree that the best time to buy a home is when you’re ready.

“One common pitfall is becoming overly fixated on timing the market perfectly,” says Jason Mudd, managing partner at Cindy Raney & Team, a boutique real estate firm in Connecticut. “Rates often fluctuate, and waiting for the absolute lowest point could lead to missed opportunities.”

That means reviewing your personal finances and deciding whether you can afford the monthly payment with the current interest rate, whether you have enough of a down payment saved, and whether you want a home at this moment. You should also factor in all of the expected and unexpected costs of home ownership, from utility bills to minor repairs and maintenance and major renovations.

“There are so many factors to consider beyond the macroeconomic picture,” Nicastro says. “It comes down to personal finances, your job situation, why you want to move, and your motivations and long-term plans.”

In short, don’t buy a house now just because you’re worried rates might go up.

“My advice is that you should purchase a house based on the lifestyle that you are looking for and your own personal financial situation regardless of interest rates,” says Derrick Barker, CEO and co-founder of Nectar, a company providing financing for professional real estate investors.

Don’t wait to buy if your bank account is locked and loaded for a purchase and your living situation demands a change.

“Each dip in rates brings a tranche of buyers back into the market,” says Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage, “so just be careful as you may find yourself with much fiercer competition a few months down the road.”

Experts say it’s prudent and necessary to consider mortgage interest rates, but it’s difficult to predict the market and, therefore, risky to base all of your buying decisions on a number you have no control over.

“Trying to predict the future is both stressful and ill-advised. Instead of focusing on factors outside of their control, buyers can focus on what is in their control to ensure they get the best mortgage rate possible,” Jones says.

Tips

One way to lower your individual rate is to improve your credit score and save for a bigger down payment while shopping around for mortgage lenders.

Keep in mind that you can always refinance your home down the line once mortgage rates have dropped significantly. Plus, Alvarez says you can ask your lender about their “float down features,” which lock you into low rates to protect against hikes while giving you the option to “float down” if rates are lowered before you close.

If you’re not quite ready to purchase a home, chances are you’ll have an even lower rate by the time you are.

“If you have time to wait until 2025, it’s a good idea to save up for a down payment in a high-yield savings account, work on improving your credit score, and get in touch with a lender to discuss other ways to boost your future approval chances and the rate you pay on a loan,” Nicastro says.