Many buyers are currently putting their plans on hold in the hopes that mortgage rates will drop, possibly returning to the all-time low of 3% from a few years ago. The problem is that those rates were never intended to be permanent. They were a temporary reaction to a very particular event. Additionally, it’s time to reset expectations as the market regains its footing.
In 2020 and 2021, 3% mortgage rates significantly increased the affordability, purchasing power, and opportunities available to buyers. However, emergency economic measures implemented during the height of a worldwide pandemic were the cause of those rates. We’re seeing mortgage rates in the high 6% to low 7% range now that the economy has changed.
The majority of industry leaders concur that rates are not returning to 3%, even though experts currently predict a slight easing in the months ahead.
Rather, a number of projections indicate that, barring any significant changes in the economy, mortgage rates will level off in the mid-6% range by the end of the year. According to Zillow Senior Economist Kara Ng:
“While Zillow expects mortgage rates to end the year near mid-6%, barring any unforeseen shocks, that path might be bumpy.”
What Buyers Should Know
In essence, waiting for 3% rates could result in longer wait times than anticipated and missed opportunities. Instead of putting off buying a house indefinitely, plan to get there and concentrate on the things you can control, like your credit, your budget, and working with a reliable expert who can tell you exactly what’s going on in the market right now and how to handle it.
In this process, a reliable lender and your neighborhood real estate agent are crucial. The professionals possess the knowledge you need to comprehend innovative ways to make your plans work, as well as insights into alternative financing options, down payment assistance programs, and negotiation tactics.
The most important thing to remember is this. Rates are expected to moderate later this year, which could encourage more buyers to return to the market. With more houses on the market than in years, you can get a head start by acting now.
Consider this: what do you think the rest of the world will do if mortgage rates do drop? Yes, they will also jump back in.
You might have a better chance of finding the ideal house with less competition if you beat the rush. Realtor.com encapsulates it nicely:
“Staying out of the market in hopes of a rate drop that never comes can lead to missed opportunities . . . Rising home prices, rent increases, and inflation might outpace any future savings on interest. And if rates do fall sharply again, buyers could face an entirely different challenge: surging competition.”
Bottom Line
The exception, not the rule, was the 3% rates that everyone recalls from a few years ago.
Now that they’re establishing themselves in new areas, it’s a good idea to modify your expectations and find out more about the direction this market is taking.
Your best resources will be a reputable lender and a local real estate agent who will keep you informed and up to date so you can understand your options and create a strategy that suits you.