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If you’re a potential homebuyer who’s wondering whether it really makes sense to buy a home in today’s tough (and expensive) housing market, you certainly aren’t the only one. For starters, home prices remain elevated due to a mix of limited inventory and persistent demand. And, ongoing inflation issues have led the Federal Reserve to keep its benchmark rate paused at a 23-year high. As a result, mortgage rates remain elevated, vastly increasing the cost of buying a home and giving many buyers pause.
But while buying a home can be a little more difficult (and substantially more expensive) in the current economic environment, it still makes sense to consider in many cases. After all, owning a home comes with a long list of benefits for homeowners, from the safety and security this type of investment provides to the potential to build equity in your property (which can be accessed at an affordable rate in the future).
If you’re going to purchase a home soon, though, you have a crucial decision to make: when to lock in your mortgage rate. And, with various economic factors at play, there are a few compelling reasons why this week might be an opportune time to make your move.
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4 big reasons to lock in a mortgage rate this week
There are a few reasons you may want to consider locking in a mortgage rate this week, including:
Mortgage rates have dipped
The Federal Reserve decided to keep interest rates paused during its meeting earlier this week, and, as a result, mortgage rates have experienced a decline, with 30-year conventional loan rates dropping from an average of about 7.07% last week to today’s average rate of 7.00%. What that shows is this latest pause in rate hikes, coupled with other favorable economic data — like the latest inflation report showing a slight drop month-over-month — has created a more favorable environment for borrowers.
After all, lower mortgage rates translate to reduced monthly payments and the potential for significant savings over the life of your loan. And, all it takes is a fraction of a percent, like the rate drop we’ve seen over the last week, to make a big difference in terms of your loan costs. So, by locking in a mortgage rate now, you can capitalize on this dip and potentially secure a more affordable mortgage.
You may also want to consider that home prices may continue to stay elevated or even rise in many markets. If this home appreciation trend continues, delaying your purchase in hopes of lower rates could result in paying more for a home, potentially negating any benefits you gain from waiting for mortgage rates to drop further. But by moving forward with your home purchase now, you can potentially secure a property before prices climb.
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The uncertain economic environment poses risks
While mortgage rates have decreased recently, the economic landscape remains uncertain. Inflation, though it’s showing signs of easing, has proven stubborn over the past couple of years, and there’s no guarantee that this downward trend will continue. If inflation were to climb again unexpectedly, the Federal Reserve might respond with more aggressive rate hikes, leading to higher mortgage rates.
And, that’s not just a theoretical. The Fed has been clear about its goal of reducing inflation by keeping rates elevated, and it has already put off the expected mid-year rate hikes in lieu of more rate hike pauses. By locking in your rate now, though, you protect yourself against potential future increases and gain peace of mind in an unpredictable market.
Limited home inventory calls for quick action
The housing market also continues to face a shortage of available homes. This limited inventory has been a persistent issue since the start of the pandemic, driving up competition among buyers and putting upward pressure on home prices. And, while there’s hope that the inventory problems will improve in the coming months, many homeowners are holding onto their current record-low mortgage loan rates right now.
So, rather than selling and buying a new home with a much higher mortgage loan rate, many current homeowners are opting to stay put instead. That is making it even more challenging to find suitable properties in today’s market. By locking in the most favorable mortgage loan rate you can find right now, though, you position yourself to act quickly when you find a home that meets your needs, giving you an edge in a competitive market.
Increased lender competition can benefit buyers
Today’s elevated mortgage rates are slowing down the mortgage loan market, which means that lenders are vying for reduced business. This competition can lead to more favorable terms for borrowers, including lower rates and reduced fees. By engaging with lenders and locking in a rate now, you can take full advantage of this competitive environment, potentially securing terms that might not be available if market conditions shift.
Some lenders are also offering loan products that are designed to make homeownership more accessible, such as low down payment options, first-time homebuyer programs and loans with flexible credit requirements. But, these products may become less available or less favorable if economic conditions change. Making your move now allows you to consider these or other specialized offerings as part of the mortgage loan process while they’re still readily available.
The bottom line
While the decision to lock in a mortgage rate is ultimately based on your circumstances and goals, the current market conditions present a compelling case for action. Mortgage rates are down compared to last week, and increased lender competition could mean that there are more (or better) mortgage loan options to consider. And, by locking in a rate now, you could not only secure a more favorable mortgage rate but could also position yourself to act decisively in a competitive housing market.
Source: cbsnews.com