Does holding out for a lower interest rate really benefit you?

I’ve heard from several of you who are considering buying this year, following last week’s email. The general concern revolves around whether now is the time to buy, or if it’s better to hold out for rates to drop further, even at the risk of home prices rising. As I mentioned in my previous email, there tends to be an inverse relationship between interest rates and home prices—when rates decrease, demand typically increases, ultimately driving prices higher. 

To provide some clarity, I shared a mortgage calculator with a few individuals who inquired, and it seemed to shed some light on the matter. In light of this, I thought it might be beneficial to share the same example I discussed with them, illustrating how the monthly payment is affected as rates decline and home prices increase. For the sake of comparison, I've laid out three distinct scenarios where the initial home price is $1 million, rising by $100,000 in scenario 2, and then again in scenario 3. The interest rate subsequently decreases by half a point.

As you can see in the example above, the monthly payment increases in scenarios 2 and 3, despite a reduced interest rate. I should point out that the probability of the rate dropping to 5.5 percent this year is slim to none. I just chose to use an exaggerated rate decrease for illustrative purposes. In terms of home prices climbing however, the likelihood is more plausible.

Considering that rates will unlikely experience a significant drop, buyers waiting to secure a lower monthly payment may want to input their own numbers into the mortgage calculator, using different rate scenarios. This will enable you to assess the potential impact of a rate decrease on your costs. 

I hope this is helpful to those of you who may be considering buying. I understand every situation is unique and that a one-size-fits-all approach doesn't apply in real estate. Therefore, I invite you to get in touch if you would like to discuss your specific real estate needs and goals for the year ahead. I’m more than happy to assist.

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