Over the last few years, the housing market has been a wild ride of low inventory, hefty price tags for homes, and soaring interest rates. In addition, there have been costly bidding wars and homeowners insurance has skyrocketed, making it tough for potential homebuyers.
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But, there is finally a silver lining. Last month, the Federal Reserve reduced the interest rate by half a percentage point for the first time since 2020. This is good news for people waiting on the sidelines to buy because mortgage interest rates have dropped to 6.38% for a 30-year mortgage, according to Zillow, which is down from 7.73%, per the Mortgage Reports.
However, there’s a lot of buzz that the Fed will drop interest rates even more before the end of the year, and Humphrey Yang, a personal finance expert and entrepreneur, recently shared his thoughts in a new YouTube video explaining whether you should buy now or wait until 2025.
Housing Predictions
If you’re waiting to see if the Fed will lower rates more, Yang referenced a Fortune article that reported 89 out of 101 economists believe there will be two 0.25% rate cuts between now and December 2024, per a Reuters poll. Yang said it’s hard to predict, but for 2025, “the Fed will either have to cut rates due to, let’s say, preventing a recession if economic and job data starts to look bad, or they just might hold rates steady.”
According to the same Fortune story, 30 economists predict the Fed will continue dropping rates in 2025 until the federal funds rate hits the 3.75% — 4.00% range.
Yang stated, “Of course, that would increase the chances that it would in turn, lower mortgage rates, but the problem is that the federal rate cuts are pretty hard to predict once you start getting six or 12 months out,” he explained.
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Advantages of Buying a House in 2024
According to Yang, there are a few reasons to consider buying a home now.
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Lock in the current house price. Nobody can say for sure what will happen next year, and Yang said, “It could be possible that as mortgage rates fall, demand will outstrip supply. This will cause prices to increase and ultimately make it really hard to own a home.”
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Even though they seem high, current mortgage rates are historically low. However, you can get an even better rate if you shop around.
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Refinance. If interest rates drop and you’ve already bought a home, you can refinance.
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More time to build equity if you buy now.
Disadvantages of Buying a Home in 2024
While there are benefits to buying now, there are also disadvantages, per Yang.
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Refinance. Although this is a pro to getting a house now, some homebuyers see it as a hassle because of the work it takes to get a lower rate.
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A better home might pop up on the market months after you purchase your current house.
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There could be a drop in housing prices.
Yang said, “If you buy now in the housing market in your region, say cools off, you might be buying at a high.”
He added, “Still though, if you’re buying a house to live in for a longer period of time, let’s say 8, 10, 15 or 20 years, you’ll always have some optionality in terms of refinancing.”
Pros for Buying a House in 2025
Yang explained the benefits of waiting until 2025 to buy and outlined the following points.
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Potential for lower rates. Yang said, “Perhaps the Federal Reserve lowers rates even to 3.5% or 3%. That means a ton of savings for you later on down the line if you were patient enough to actually wait for those rate cuts.”
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You have more time to save for a nicer house.
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Increased inventory. Yang stated that if rates drop more, sellers will be “less hesitant” to list their homes.
Cons of Buying a Home in 2025
There are financial reasons to buy a home in 2025, but also reasons to pause and maybe buy earlier, according to Yang.
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Home prices could rise. “If home prices rise while you wait, then the overall savings from a lower interest rate in the future may not outweigh the increase in home prices, ” he said.
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You’re still paying rent while waiting for interest rates to possibly fall.
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There is no guarantee the Fed will drop rates.
Bottom Line
If you buy now, you will save money on interest. It might now seem like .05% makes much of a difference when it comes to your mortgage payment, but the savings do add up. Yang explained that if you have a $400,000 mortgage and the interest rate was 6.5% over 30 years, you’d pay $510,178 in interest.
However, if the interest rate were 6.0%, you’d pay $463,353, a savings of $46,825 over 30 years. It’s a gamble to wait, but it could pay off if the Fed cuts the interest rate more. Factors to consider when deciding to buy now or wait include your finances, flexibility and the demand of the market.
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This article originally appeared on GOBankingRates.com: Humphrey Yang: Should You Wait Until 2025 To Buy a House?