Should you buy a home this fall or wait for rates to drop further?

More than two-thirds of Americans believe buying a home is a key part of the American dream, according to a recent BMO Financial study. However, despite the persistent belief in the benefits of property ownership, most aspiring homeowners have been hesitant to purchase a home in the post-pandemic era. The same study revealed a whopping 71% of aspiring owners were waiting for mortgage rates to drop before they'd move forward with an offer to buy a home of their own.

Would-be buyers have had plenty of good reasons not to rush into the real estate market. While mortgage rates have fallen in recent weeks, the post-pandemic era has seen the most expensive home loan rates since the early 2000s. Home prices also surged due to limited inventory, leaving potential buyers looking at paying high rates and choosing from a small pool of high-priced homes. 

The good news, though, is that mortgage interest rates in September have already become more competitive, and the mortgage interest forecast for fall 2024 suggests a further reduction in borrowing costs could be imminent. The bad news is that borrowers eagerly preparing for mortgage rate cuts and hoping for mortgage rates to drop below 6% are now facing a tough choice. They now must decide between acting quickly now that rates have started to fall or continuing to delay in hopes of further rate cuts in the coming months. 

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Should you buy a home this fall or wait for rates to drop further?

So, is it worth buying a home this fall, or does it make more sense to wait out future rate drops? Here's what experts say.

The case for waiting for rates to drop

There's a solid case to be made that buyers who have been sitting on the sidelines may want to wait just a little bit longer. That's because this fall may be just the start of some favorable trends. 

"Mortgage rates will continue to fall in September and potentially throughout the rest of the year," according to Neil Christiansen, branch manager and certified mortgage advisor at Churchill Mortgage. "This will be due to the 10-year Treasury, which is currently at 3.8%, falling to a range between 2.5% - 3.5% as inflation moves lower over the next couple of months. If the 10-year Treasury gets between this range, rates should be in the mid to high 5% to lower 6%."

With the average mortgage interest rate currently coming in at 6.41% as of September 11, 2024, the prospect of a big rate drop in the coming months may be reason enough to delay. But there could be another benefit as well — a potential increase in available properties. 

"Higher interest rates have kept inventory low," says agent Steven Gottlieb of Coldwell Banker Warburg. "If interest rates are cut, the market should thaw."  

Current owners with affordable home loans have been hesitant to list properties, as relocating could mean giving up a mortgage rate below 4% for one in the 6% to 7% range. As rates decline and owners no longer face the prospect of almost doubling their rate if they move, they'll likely be more eager to list their current homes, driving this inventory increase. 

This doesn't mean home prices will necessarily decline this fall, although that's possible in some markets. It does mean, though, that you may have a larger pool of properties to choose from and the chance to get a lower mortgage rate if you wait a bit longer to buy. 

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The case for buying a home this fall 

While there are perks to waiting, it's also important to consider the case for buying as soon as possible. Specifically, there's one big reason to buy sooner rather than later. 

"The more rates continue to drop, the more competition there will be amongst buyers," says Sean Adu-Gyamfi, a real estate broker at Coldwell Banker Warburg. "Something that most buyers tend to forget is that in most cases, they're able to refinance their home when rates are lower than what they currently have. Purchasing a home sooner to avoid the rush would be my best piece of advice."

While refinancing in the future is almost always possible, finding an affordable house might not be if the decline in rates sends demand — and prices — skyrocketing. 

"Economics 101 says if demand increases — which it will when mortgage rates start dropping this fall — prices will rise," says agent Robert Elson of Coldwell Banker Warburg. "Any buyer who hesitates because they feel that rates will drop is running a fool's errand."

Passing up on the chance to buy a property before a potential price surge could be a serious mistake, as you can change your home loan at any time, but not the price of the property. "A term that's become really popular right now is, "date the rate, marry the house,"  says Beverly Hankinson, senior vice president and mortgage loan advisor manager at Frost Bank.  

The bottom line

With solid arguments in favor of both buying and delaying, what's a potential homeowner to do? 

"Buyers should do what's best for them, based on their personal situation, along with informed conversations with financial advisors," Gottlieb says. "An attitude of "buy now and refinance later" might work well for some buyers but not others."

The best course of action may be to look at some homes, get pre-approved for a mortgage, and make your choice based on whether you find a property you can afford now and that you actually want to make an offer on. 

As Hankinson notes, "if the home checks all your boxes, it likely makes sense to move forward with the purchase with the option to potentially refinance in the future."