As interest rates fluctuate, many prospective homebuyers are left wondering whether they should wait for lower rates or take advantage of current housing prices. While it may seem intuitive to hold out for a better rate, there are strong arguments suggesting that this strategy could actually end up costing buyers more in the long run.
Neil Anders, Vice President of Sales at Trusted Rate, offers a compelling perspective on this issue. According to Anders, while low interest rates are desirable, the influx of buyers that typically accompanies a rate drop can drive up home prices. Anders notes that, according to Realtor.com, for every 1% drop in interest rates, an estimated 5 million additional buyers qualify for loans. This surge in demand leads to more competition for properties, often resulting in bidding wars that inflate home prices. Consequently, the higher purchase price can offset — or even outweigh — the benefit of the lower rate.
Anders suggests that the best strategy for homebuyers is to take advantage of today’s prices while interest rates remain relatively high. By purchasing before a rate drop, buyers can secure a property at a lower price, avoiding the inevitable price hikes that come with increased demand. While buyers may initially face a higher mortgage rate, Anders emphasizes that interest rates are far more flexible than home prices. Buyers can always refinance to secure a lower rate later, but they cannot renegotiate the purchase price of a home.
To achieve the best of both worlds — lower home prices now and lower interest rates later — Anders highlights the benefits of a temporary buy-down. This financial tool allows buyers to lower their interest rate for the first two or three years of the loan, offering short-term savings while rates remain high. Importantly, these buy-downs are often paid for by the seller, meaning the buyer can benefit from reduced rates without additional out-of-pocket costs. When rates eventually drop, buyers can refinance to lock in permanent savings while having already secured their home at a lower price.
Anders advocates for a proactive approach to homebuying, suggesting that waiting for lower rates could lead to higher overall costs. By purchasing at today’s prices and refinancing later, buyers can optimize their financial position in both the short and long term. As Anders points out, buyers are unlikely to find low prices and low rates at the same time, but with the right strategy, they can benefit from both.
