Should I Wait for Interest Rates to Lower to Buy a Home?

If you’ve been thinking about buying a home in the last few years, it may seem like the current interest rates are high. Purchasing a home is one of the biggest financial decisions most people make. No one wants to feel like they’ve paid too much money, so you’ll want to do your research to make the right choice for your unique situation.

It may be tempting to want to wait until interest rates go down to buy a home. Before you decide on a plan, you’ll want to understand where rates have been in the past and why interest rates fluctuate. 

How do mortgage interest rates work?

According to The Balance, a mortgage interest rate is a percentage of your total loan balance. This rate is paid on a monthly basis until your mortgage loan is paid off, along with your principal payment. Your interest rate is how the lender is compensated for loaning you money. To fully understand how much it costs to borrow the money, look at your annual percentage rate (which your interest rate factors into as well). 

Historically, interest rates are still low. This chart shows interest rates since 1992 on 30-Year Fixed-Rate Mortgages for a loan at $575,000. Based on information obtained from Freddie Mac on April 6, 2022.

Interest rates in 2022 

While 2022’s interest rates rose quickly, it's important to put into perspective, historically, where rates have been. Looking at Freddie Mac data, in 1981, mortgage rates got as high as 18.45%. If you’ve only recently had an eye on interest rates, it might seem like they are getting high, but we’ve actually gotten used to artificially low rates. According to Investopedia, the Federal Reserve cut interest rates as a response to the pandemic and the struggling economy. This in turn caused mortgage interest rates to lower.

Did the Fed raise interest rates?

Yes, and they may do it a few more times in 2022. The Federal Reserve raised interest rates in May of this year, which was the biggest hike in two decades, according to CNBC. The reason the Fed raises interest rates is to combat inflation because the cost of borrowing money increases. In theory, this helps put the brakes on the economy. 

That said, the Fed doesn’t directly raise mortgage rates. Rising interest rates do impact home equity lines of credit and adjustable-rate mortgages. Instead of the Fed directly raising mortgage rates, mortgage rates are actually influenced by the yield on 10-year Treasury bonds, according to The New York Times. 

What is a 10-year Treasury bond?

Investopedia defines 10-year Treasury yields as a way to “ show how investors assess the economy's prospects. The higher the yields on long-term U.S. Treasuries, the more confidence investors have in the economic outlook. But high long-term yields can also be a signal of rising inflation expectations.” Mortgage rates and other interest rates not directly influenced by the Fed rates tend to look at the Treasury yields as an indicator of inflation and as a guiding point for setting rates. 

Where are interest rates going in 2022?

While we can’t tell the future, many experts predict that interest rates will continue to fluctuate. We saw a dramatic increase, but as of June 7, Business Insider reports that they are holding steady around 5% and we see that they are plateauing.

According to Forbes, experts are forecasting that the 30-year, fixed-mortgage rate will vary from 4.8% to 5.5% by the end of 2022. Additionally, they point out in that article that people waiting for rates to fall may be waiting awhile.

Should I wait for interest rates to lower?

Some people may be waiting to see if these rates will dramatically cool the hot housing market. According to a quote given to The Austin-American Statesman, Independence Title's Mark Sprague said that we should expect, "Maybe a tad slowdown, but not much. Rates increasing will slow sales, but not stop them. The market still needs shelter." 

As for waiting for rates to lower, the cost of waiting only increases the longer potential buyers pause — for those that can bear the current rates, this is a good year to buy a home.

In a fast-moving market like San Antonio’s, the guidance and expertise that real estate agents provide has never been more valuable. As Central Texas’ #1 independent real estate brokerage, we’re dedicated to helping our clients make informed decisions.

Disclaimer: The information provided in this blog does not constitute legal or financial advice.