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- Gradually falling mortgage rates will create a more challenging market, Realtor.com wrote in a new report.
- They said homebuyers shouldn't wait for lower rates, and buy a home when they're financially ready.
- Lower rates will bring more buyers into the market, causing competition to surge, the report said.
Homebuyers shouldn't hold out for lower mortgage rates, as the gradual decline will only encourage other market challenges. Instead, it's best that financially prepared buyers move forward on properties that fit their needs, Realtor.com wrote in on Tuesday.
"Bottom line for homebuyers: If you see a home you love, don't wait," the agency said.
Mortgage rates have been on the decline since peaking at a near-8% level last October, a high not reached since 2000. But by January, the 30-year fixed mortgage went on to average 6.34%, pushed down by hopes that interest rates would ease in the near future.
Broadly, mortgage rates tend to move alongside Federal Reserve policy.
And although surprising strength in the US economy this year has complicated bets for interest rate loosening, sending mortgage rates up to 6.9%, Realtor.com sees rates gradually decline, though possibly in a volatile manner.
Though this may excite homebuyers that have long been priced out of the market, lower mortgage rates won't make way for a massive price drop, the real estate firm said. Previously, it forecast a modest 1.7% depreciation through 2024.
Price downside will be limited by the fact that falling rates bring back homebuyers en masse, causing them to compete over the few homes available for sale.
To illustrate, a 1% rate drop qualifies another 5 million households for homeownership, Realtor.com said, citing a Churchill Mortgage manager.
"In other words, homebuyers will find themselves essentially trading the frustration of having a higher mortgage rate for the frustration of competing in a more challenging market," the agency wrote.
To compete in this environment, homebuyers will likely have to go above the asking price, and put in multiple offers to land a home.
Supply, which has been constrained by high mortgages, is also unlikely to see a considerable improvement. That's as many current homeowners hold a mortgage rate below 5%, making them unwilling to sell their property, with current rates unlikely to fall that low, Realtor.com said.
This lock in-effect has factored into the massive slowdown in full-year home sales last year, hitting the lowest volume since 1995.
Those that buy now can avoid the competitive landscape, and circumvent risks such as overpaying or waiving a home inspection. Mortgages can be refinanced down the loan, Realtor.com noted.