3 questions homebuyers should ask themselves now
2023 was not an ideal time to purchase a home. Thanks to nagging inflation and higher interest rates designed to combat it, mortgage interest rates hit their highest level since 2000. And housing inventory was low, partially as a result of those elevated rates. But, as the year evolved, inflation cooled and interest rates held steady, albeit at a 22-year high.
With a new calendar year, however, there are some encouraging signs for homebuyers. It may soon be safe to start buying again, especially if rates drop later this year, as many are forecasting.
That being said, homebuying is a complex process and buyers should go into it clear-eyed and focused. Accordingly, it helps to have the answers to some important questions as they embark on what undoubtedly will be an exciting but potentially stressful journey.
Start by exploring today's mortgage rates here to see what you qualify for.
3 questions homebuyers should ask themselves now
Here are three big questions homebuyers should be asking themselves right now.
Should I wait for interest rates to drop?
This is arguably the most important question buyers will want to get correct. Should they wait for rates to drop later this year — as many are already forecasting — or should they act now and just refinance in the future?
The answer to this question is a personal one specific to the buyer and their goals and financial situation. There are obvious compelling reasons to both act promptly and wait it out. That said, even if they wait and rates do drop later this year, they're highly unlikely to drop as low as they were in recent years.
While rates in 2020 and 2021 could be found in the 3% range, many experts don't expect them to fall significantly lower than where they are right now (a 30-year mortgage currently comes in at 7.06%). Still, a lower rate is a lower rate and every dollar counts, particularly when spread out over decades. Just don't wait for a huge cut because that's unlikely to happen.
See what rate you could qualify for today to learn more.
Should I pass on my dream house when rates are high?
Higher interest rates can be discouraging, preventing millions of buyers and existing owners from entering the market at all. But is that always the right move, particularly if it comes at the cost of having to pass on your dream home? Many experts would argue that it isn't.
That's because your dream home — with its perfect combination of location, renovations, size and more — isn't likely to come along very often. So, when it does, you should take advantage even if rates are high.
In these circumstances, buyers are often encouraged to "date the rate and marry the home." In other words, the rate will be temporary but the home will be permanent. You won't want to miss a once-in-a-lifetime opportunity because of an imperfect rate market. Instead, buy the home and take advantage of refinancing when the timing presents itself.
What will the housing inventory look like if I wait to buy?
Housing inventory has been tight in recent months, at least partially due to the higher interest rate climate. Those elevated rates have discouraged existing homeowners from selling their homes since the new rate they can theoretically acquire will be higher than what they already have. But what if interest rates drop in the months to come? That could incentivize more owners to sell, thus growing today's limited inventory.
But even if that does happen, a greater inventory combined with lower rates will likely lead to more buyers competing against each other. That could wind up quickly negating the benefits of those first two factors. Instead, some buyers may benefit from acting now, even with rates higher, to circumvent what many are expecting to be a much more competitive spring homebuying season.
The bottom line
Homebuying is a personal decision and the factors and considerations that go into should be treated as such. But the real estate market will be a changed one in 2024, spurring many prospective buyers to get involved. As they prepare, they should do their research and have answers ready for the above questions. By doing so, they'll better be able to make an informed and unemotional decision and thus more adequately prepare themselves for their homeownership journey.
