Mortgage rates have decreased slightly in recent weeks, but experts warn that waiting for further drops may not make a significant difference in housing affordability. The average rate on a 30-year fixed mortgage is now 6.57%, down from a peak near 8% last November. Many economists predict the Federal Reserve will cut the federal funds rate by 25 to 50 basis points in September, which would likely lead to further reductions in mortgage rates.
However, homebuyers should be strategic and avoid certain mistakes in the current rate climate. One mistake is locking in a rate now, as there is a significant chance of greater reductions in the near future. Instead, buyers should shop around for competitive rates and be prepared to act when the time is right.
Being unprepared is another mistake to avoid. Buyers should have their paperwork ready and maintain good credit to secure the best rates. They should also know their budget and be ready to make aggressive offers on their dream homes.
Current trends in mortgage rates
While waiting for rates to drop as much as possible may seem smart, it’s important to understand the potential repercussions. Lower rates could increase competition and drive up home prices.
In some cases, it may be wiser to buy now and refinance later rather than face more competition and higher prices down the road. Experts argue that even if mortgage rates fall, it won’t significantly ease the housing affordability crisis. Ralph McLaughlin, a senior economist at Realtor.com, explains that lower rates can temporarily increase purchasing power, but this often leads to higher home prices over time.
“When buyers have the ability to borrow more, they can pay more for a home. This competitive bidding drives up home prices, but this doesn’t happen overnight,” McLaughlin noted. For genuine improvements in affordability, either significantly more homes need to enter the market, or income growth must outpace home price growth.
In a market still strained by limited supply and high demand, merely waiting for mortgage rates to decline won’t be the ultimate solution.
