If Mortgage Rates Are Dropping: Should Homebuyers Shop Now or Wait?

You may have heard that mortgage rates are dropping and thought, “This is the perfect time to start shopping for a home.” The question is, should you jump into action now or wait until spring is in full swing before resuming your search for a new house?

Buying a house is an exciting and challenging journey, and every homebuyer’s journey is unique. For some, mortgage rates dropping by a few tenths of a percentage point is enough incentive to buy right away. For others, waiting a couple more months may be the right answer.

While you’ll have to decide for yourself whether now or later is the right time to buy, the information below will help you make an informed choice.

What Is a Mortgage Rate?

In the world of real estate, your mortgage rate refers to the interest rate on your home loan. The higher your rate, the more interest you’ll pay on the money you borrowed. The rate will impact both your monthly payment and the total lifetime cost of the loan.

Depending on the value of the home you purchase, a single percentage rise in interest rates can increase your monthly payment by $200–$300. Higher rates mean less buying power, as you’ll have to pay more per month for a less expensive home.

Mortgage rates dropping is great news for homebuyers. It’s a good sign for home sellers, too, as lower rates mean more market activity. 

How Much Have Mortgage Rates Dropped?

Mortgage rates change daily. As of January 2024, the national average rate for a 30-year mortgage hovered around 6.9%. Last year, the national average for a 30-year fixed mortgage was 6.79%.

You might be thinking to yourself, “Wait a minute, I thought mortgage rates dropped?” You’re right — they did.

While 6.79% was the average across all of 2023, the tail end of last year saw some new highs in mortgage rates. At their worst, rates hit 7.79%, meaning current rates are nearly a full percentage point lower than they were in October 2023.

The bottom line is that mortgage rates are trending downward, which is great for everyone. However, they’ve still got a long way to go to offset the infamous surge that’s occurred over the last 18 months. 

Is Now a Good Time to Buy?

Mortgage rates dropping is a good indicator for homebuyers, as it means lower interest payments and more purchasing power. However, some homebuyers may want to wait a few more months to see if rates keep trending down.

There’s no right or wrong answer here. If you buy now and rates go down over the next few months, your interest rate will be higher than it would’ve been if you’d waited. On the flip side, a bigger drop in rates will also lead to more purchasing activity, which means more competition as you try to land that dream home.

If you want to face less competition and are willing to deal with a higher rate for a couple of years until it’s time to refinance, now is a fine time to buy. However, if you don’t have enough purchasing power to land a home that checks all the boxes, it might be better to wait.

Keep in mind that you can always set your sights on starter homes, which are usually smaller and more affordable. Unfortunately, the phrase “starter home” is often viewed negatively. In reality, your first home can be your dream home if you take the right approach.

For instance, if you find a hidden gem that needs some work in your ideal neighborhood, you can save thousands. Additionally, you’ll be able to avoid the rush that falling mortgage rates will kick off and bid on homes with minimal competition.

Ready to Weigh Your Options?

Still not sure whether falling mortgage rates are giving you the green light for your home-buying journey? The best way to find out is to weigh your options, explore the costs of a mortgage, and browse homes in the area you want to live.

After doing some research, connect with some industry professionals who can assist you along the way. You’ll need a real estate agent with great negotiating skills and lots of knowledge about the local market, as well as a reputable mortgage lender to help you find the best mortgage program for your unique situation.

With a little diligence and a strong team in your corner, you’ll be well on your way to homeownership.