Should you wait for the September Fed meeting to buy a home?
The wait for lower mortgage interest rates will soon be over. The Federal Reserve is set to meet again on September 17 and September 18 and, after their meeting, a reduction to the federal funds rate is widely expected to be issued. Currently at a range between 5.25% and 5.50%, a 25 basis point reduction or even half a percentage point reduction could soon occur.
The Fed's expected action, combined with a consistently cooling inflation rate, are positive developments for homebuyers stuck on the sidelines in recent years. Right now, buyers could purchase a home with a rate more than double what it was in 2020, for example. Or they could elect to wait for a more ideal time to buy. But is that preferred time right now or is it worth waiting for the September Fed meeting to take place before buying a home? That's what we'll break down below.
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Should you wait for the September Fed meeting to buy a home?
While every homebuyer's financial situation is different, there's a strong argument to be made for buying a home right away versus waiting for the Fed to issue a rate cut later this month. Here's why:
Mortgage interest rates are already falling
Lenders don't need to wait for a formal federal funds rate reduction to begin offering lower mortgage interest rates to borrowers. And some haven't; instead, they've priced in this inevitability and mortgage interest rates are already falling. Depending on the lender, you may be able to get a mortgage rate more than a full percentage point lower than what was being offered at the end of 2023, for example. So don't think you need to wait for the Federal Reserve to take action. You may already be able to get a lower rate than you anticipated right now.
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A cut may not be directly replicated by lenders
If you're waiting for a formal rate reduction to be replicated identically by lenders, you may be waiting a long time. That's because the federal funds rate only guides what lenders offer — it doesn't directly dictate it. This is why lenders have already started cutting their offers, but it's also why borrowers may not see anything dramatically lower once a cut is issued on September 18, particularly if it's just by 25 basis points. Waiting around may not be worth it if this is your primary motivation for doing so.
Increased competition could make homebuying more difficult
Millions of prospective homebuyers are all waiting for the same thing: lower mortgage interest rates. So waiting could be problematic if means dealing with increased competition. When more buyers enter the market, the potential for bidding wars increases. And that could easily eliminate any savings obtained by waiting for a lower rate. Weigh the pros and cons carefully, then, to determine if it's better to act now instead.
High home prices could rise even further
The average home price is already high, currently sitting at around $427,000 right now. But if rates are cut and more buyers flood the market, prices could change. Increased competition for limited resources may propel many sellers to raise the price of their homes. This could easily negate any savings secured by waiting for a lower mortgage interest rate. And, depending on the price increase, may take certain buyers out of the running for a home they may have been able to afford in previous months.
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The bottom line
Waiting to buy a home versus acting now is a personal decision for buyers complicated by multiple evolving factors. But there's a compelling argument for acting now instead of waiting for the September Federal Reserve meeting. With mortgage rates already falling, the potential for dramatic decreases post-meeting slim, and the added issues of increased competition and elevated home prices, many buyers may find now a better time to proceed. It's critical, however, to carefully calculate your savings now versus what can be realistically obtained in a few weeks to better determine your best path forward.
