Should I buy a house now, or wait until 2024?
Last year, 2022, was a year of rising interest rates. Mortgage interest rates climbed from 3.25% on January 1st to 6.4% on December 31st. To many people, this seemed like a result of the Federal Reserve raising rates. The Federal Reserve has given some signs of stopping raising rates, so many people believe that rates will fall and if they only wait a little longer, then the market will be better. But, things are more complex than they appear, as you’ll see in this article. Last year, wrote a piece called “Should I buy a house now, or wait til 2023” that cautioned that prices will likely decrease. Now, we will consider the question, “should I buy a house now, or wait til 2024”!
Higher mortgage rates make it harder to qualify for a mortgage at the price you used to be able to qualify for. And, higher mortgage rates make monthly mortgage payments more expensive, which is probably why you’re wondering, “should I buy a house now or wait til 2024.”
But here’s why the right time to buy is now, and you should not wait until 2024, if you are able to qualify now.
Reason #1 to buy now: prices have softened
From January 1, 2020 to June 1, 2022, home prices have been on a tear. Overall, they’ve risen 14%. No doubt, this has been fueled by historically low interest rates.
But since mid 2022, prices have been cooling off. Are they as low as they will go? No one can tell. But, one thing to watch out for is that if the mortgage interest rates start to drop, then prices can start to climb. We’re in a delicate balance to figure out where the bottom of the market is , and the truth is, you only know it’s the bottom when the bottom has passed.
Reason #2 to buy now: Mortgage rates are impossible to predict
While most people probably think that mortgage rates are tied to the Federal Reserve rate, but mortgage interest rates are tied to the 10 year Treasury yield. Normally the mortgage rate is within a couple hundred basis points (1.5%) of the 10 year Treasury yield.
But there are weird things going on in the mortgage market – sort of like supply chain issues – and the mortgage interest rate is currently more than 250 basis points (2.5%) above the 10 year treasury yield. So even if the Federal Reserve lowers rates, it will not be a linear drop for the mortgage market because of bond market dynamics and the mortgage backed securities market.
Seeing that we don’t know when rates will drop until they do, it’s impossible to game the system. If you want to be in the market, buying is your best option.
Reason #2 to buy now: Staying out of the market may make things more expensive for you
Rates may go down, but they also could go up.
There’s an adage in the real estate industry now: “marry the house but date the rate.” Meaning, you can buy a house at the current rate but then refinance when rates go down.
But here’s the thing: if rates go down, you can refinance. If they go up, then you’ll just feel further shut out of the market. Of course, if rates go up further, chances are that prices will fall, but rates higher than now aren’t going to be particularly favorable to affordability.
Reason #3 to buy now: Consider length of time in the house
If you’re planning on staying put in a new house for a while, then it may not matter so much if you’re buying above the bottom of the market. If interest rates stay high and prices fall further, yes, you could end up paying more than if you hit the bottom perfectly.
But if you’re buying for the long haul, things even out over time. Price increases are not simply linear, they go up and down but over time, it’s more or less an upward trajectory.
When considering the question, “should I buy a house now, or wait til 2024?” there are a number of factors to consider. While affordability is definitely affected because rates are higher than last year, it’s impossible to time the bottom of the market. Mortgage interest rates could fall but that may just end up driving prices up. The best advice is that if you plan on buying, it’s better to get in the market, especially if you’re planning to be in the house for a while.