Why You Should Think Twice About Waiting for 3% Mortgage Rates

“I’m going to wait to buy my house because the interest rates are too high.”

This is something we hear very often from homebuyers today - many of whom say they are waiting for mortgage rates to hit 3% or lower.

In theory, it seems like a great idea. But in reality, it may not be that simple. 

Today, we’re diving into a few reasons why you should think twice about waiting for 3% mortgage rates. 

During the pandemic years of 2019-2022, the real estate market was swept up in a buyer frenzy. With interest rates hitting historic lows of 2-3%, it was a phenomenon the mortgage and real estate industry had never seen before. In fact, rates dropped to as low as 2.64% for a 30-year fixed rate mortgage in January 2021.

Then, in May 2022, the market began to cool. Homebuyers who had grown accustomed to the 2-3% of the previous few years were alarmed when rates continued to climb past 5%. This brought many people’s home search to a halt. Some were uncertain of where the market was headed, while others were hopeful that rates would return to the pandemic lows.

However, experts are saying that it’s highly unlikely. 

Greg McBride, Bankrate’s Chief Financial Analyst, explained, “I think we could be surprised at how much mortgage rates pull back this year. But we’re not going back to 3% anytime soon, because inflation is not going back to 2% anytime soon.”

It’s important to recognize that the mortgage rates during the pandemic were not benchmarks - they were outliers. And the market we are in today is vastly different from the one we were in a few years ago. 

In 2019, the pandemic shook the world and became the catalyst for one of the biggest recessions in recent US History. To stimulate the economy, the Federal Reserve significantly lowered the interest rates. The goal was to encourage people to spend, putting more money into circulation. Eventually, the economy did improve, but at the heavy cost of inflation. The inflation rate has come down from its peak of 9.06% in July 2022, sitting right around 5% as of March, but there’s still a long way to go. As a result, the Fed’s main focus now is to combat inflation by raising the interest rates.

If inflation continues to stay as high as it is, we won’t be seeing mortgage rates plummet anytime soon. Homebuyers who are waiting for the 3% mortgage rates may be sitting on the sidelines for a very long time. And every day you wait can be costing you a lot more than you might think.

Historically, home prices have always increased year-over-year. According to the Case-Shiller Home Price Index, the annual appreciation in the US is 2%. For the city of Chino, that number is closer to 2.33%. This means that the average single-family home in Chino worth $777,000 last year may now be worth $795,000. At this current rate, the same property could be worth $892,000 in five years. That’s $115,000 in equity you could have built if you had bought in 2022.

Another important thing to keep in mind is that, generally, when interest rates fall, home prices go up. When rates are lower, more buyers enter the market and the competition gets fierce (especially when there is low inventory). This causes multiple offer situations where motivated buyers overbid on a home to secure the property, driving up the prices.

Now you may be wondering, “Then is it better to buy when rates are low but prices are high, or when prices are low but rates are high?” Here’s the solution: rather than focusing on interest rates and home prices, focus on the affordability.

Review your finances and set a budget you are comfortable with. Your real estate agent and lender should be able to help you determine the monthly payments and guide you through a game plan for your specific goals. 

It’s critical that homebuyers today set realistic expectations. The current market presents a great opportunity for you to buy your dream home while home prices are lower and there’s less competition. If you are financially able to, it may be a good idea to make the move now, rather than missing out while waiting for the 3% interest rate we probably won’t be seeing anytime soon. 

Our #1 priority is hearing your story. This allows our team of real estate and mortgage professionals to tailor a game plan specifically for your needs and goals. Schedule a no-obligation strategy session with us below!