Should I Wait Until Prices Drop?

Over the past several months we've heard a lot of potential home buyers express uncertainty about when interest rates will come down and how much they will fall. Many of these people seem content to wait on the sidelines and only buy a house once interest rates are lower. While we sympathize with the pain that high interest rates have caused and understand that interest rates affect how much and whether a buyer can qualify for a mortgage loan, we want to offer a few thoughts on why it might not be advantageous to wait until after interest rates have fallen.

First, waiting for home prices to drop is not historically a winning game. With one major exception, home prices largely have trended up over time. Nearly all home buyers today will remember the catastrophic housing market of the great recession in 2007-2010. While it is wise to remember that event and learn from it, it is not helpful to wait for such a crisis to repeat itself. The best time to buy a house would have been 10 years ago or 30 years ago, but we can't go back in time. The next best thing is to buy a house as soon as you can and ride the upward wave of appreciation. 

Second, once interest rates do fall, home prices will likely experience upward pressure. Many home buyers are waiting on the sidelines right now, and they will re-enter the market in a big way once interest rates drop. This may or may not result in a frenzy, but it will surely increase the pool of buyers and drive prices up. 

Third, the costs of building new homes is not falling. Land and lot costs are only rising. And materials and labor seem to be constantly climbing. It's hard to imagine home values tumbling when the cost to replace them is becoming more and more expensive.

Fourth, and perhaps most significant, many lenders and title companies are offering a incentives to "buy now and refinance later", meaning they waive or reduce costs like origination fees, appraisal fees, closing fees, and title fees. This means that once interest rates drop, you can refinance your mortgage at the lower rate without having to pay full price to refinance your loan. Our preferred lender, CMG Home Loans is offering a "rate rebound" program where buyers can buy now and then refinance as many times as they want within 5 years. CMG covers the lender fees, appraisal fees, tax cert fees, and gives borrowers $1,000 toward title fees. And, as always, they offer a 1% closing credit to all Riverwood buyers, and they do free extended rate locks and free rate float downs. They are extremely competitive with their promotions and offerings. 

So, for those looking to buy a house, it is a good time to make that purchase now and refinance later once interest rates have dropped.