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Waiting for Lower Rates to Buy a Home?

Mortgage rates have taken a quick dip the past few days and are now near or below 6% after climbing over 8% a few weeks ago. While that is enough to spur on many would be homebuyers to start looking to buy, many others are adopting a wait and see approach – hoping rates will go down further.


Based on the opinions of some economists and a chorus of financial TV talking heads, it may even be likely that rates will continue to decrease. So, should you wait until rates come down further to buy a home? Probably not.


There is a strong pent-up demand among likely home buyers and very little inventory of homes for sale in most markets and, especially low inventories of homes on the more affordable end of the price spectrum. Like anything, the price of real estate works on a supply and demand equilibrium.


If rates continue to fall, more and more homebuyers will enter the market causing prices to spike even further. Attractive homes will see offers above asking prices, bidding wars, etc.


"But . . . but . . . interest rates . . . Won’t I save with a lower rate if I wait?" Again, probably not. Let’s take a look at the difference in buying at today’s home prices with today’s rates versus waiting 6-12 months.

Buyer A purchases a $330,000 home today, finances 90% and gets a 6.5% rate. The monthly P&I payment is $1877.


Buyer B waits 6-12 months, and purchases a home when rates are 5.5%. However, because of the lower rates, Buyer B has to pay $349,000 (6% increase) for the home. Financing 90% at 5.5%, Buyer B has a P&I payment of $1788.


Buyer B saves $89/month versus Buyer A – however, Buyer A paid $19,000 less for the home and now gets to refinance to 5.5% giving Buyer A the same payment as Buyer B!


Real estate values have withstood a tough market conditions with rates nearing 8%. Values will start to rise again now that rates are coming down towards 6%. Waiting for rates to improve will only cost you on the price of the home.


If you are ready to buy a home, now is always the best time.

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