Mortgage rates are dropping. Should you buy a home now?

If you've considered buying a house in the past year, you probably know that mortgage rates are currently high. This is partially a result of a series of hikes to the federal funds rate by the Federal Reserve. While this does not directly impact mortgage rates, the rates mortgage lenders offer tend to go up and down alongside the Fed rate.

In recent weeks, though, mortgage rates have dropped a bit. As of November 30, 2023, the average interest rate for a 15-year fixed-rate mortgage was 6.84%, while the rate for a 30-year loan was 7.66%. At the start of November, those averages were 7.20% and 8.06%, respectively. 

The current rates may not be nearly as eye-catching as the sub-4% number borrowers were getting just a few years ago, but they are still a sign that things are moving in the right direction — and that, perhaps, now is the time to start shopping.

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Mortgage rates are dropping. Should you buy a home now?

Here are a few reasons to consider starting your home search now, especially if high rates were the biggest issue standing in your way.

You can beat the rush

When rates start to get lower, more people are going to be interested in buying a home. With housing stock low, this creates a situation where demand is high and supply is low, which is a recipe for high prices.

"The biggest obstacle to buying a home in 2024 will not be affordability or high interest rates, it will be competition from other buyers," says Darren Tooley, senior loan officer at Cornerstone Financial Services in Southfield, Mich. "We already have more homebuyers than there are homes for sale and as interest rates begin to fall in 2024, there is a whole segment of potential buyers who have been waiting on the sideline that will be ready to enter the market."

There is such a thing as seasonality in the housing market, though. Simply put, there are generally fewer buyers in the winter because people don't want to go out and drive around looking at homes when it is bitterly cold. If you want to beat the rush, though, you can take advantage of falling rates now while others try to wait it out until the spring thaw.

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You can take your time

It seems possible that mortgage rates will continue to drop in 2024. For this reason, you can take your time in finding the right house for you, rather than rushing to take advantage of the falling rates. You can even get preapproved for a mortgage, something many experts say could help you get the home you want. 

"Consider getting pre-approved for a mortgage to understand how much you can afford and to show sellers that you're a serious buyer," says Hanna Horvath, a certified financial planner.

The Federal Reserve has raised rates over the past 18 months in response to high inflation. It has largely worked — inflation went from more than 9% year-over-year in June 2022 to just over 3% in October 2023. 

There is one more inflation report before the December meeting of the Fed, the final meeting of the year. If inflation data continue to trend in the right direction, the Fed may opt to keep rates paused for the third straight meeting, allowing rates to continue to drop.

After that, the Fed has indicated a few rate cuts may well be coming in 2024, though it could be in the back half of the year. This could push rates down further still — again, not to the lows of several years ago, but still into a range more favorable to borrowers. While that doesn't mean you need to wait to start shopping or getting preapproved, it does mean you have time to find the right house for you.

You can always refinance

If you're still a bit gun-shy about the current rate market and think you want to wait until things turn around even more, just remember – refinancing is always an option.

If you buy a home in February 2024 and by 2025 you see that rates have fallen even more, you can refinance your mortgage to get a better rate. If you try to wait out the market, though, you may miss out on a house that fits all your wants and will come in under budget. 

The bottom line

Mortgage rates may still be higher than you'd prefer, but they have dropped significantly over the past month. If you are considering moving, now might be the perfect time to make a move and start looking for a home – and a mortgage to finance it.