Many first time homebuyers have been anxiously waiting for mortgage rates to drop, with good reason. Once they secure an interest rate, they are locked into it for the life of the mortgage, and current rates are higher than four years ago. Predictions show that mortgage rates will fall modestly in 2024 and more noticeably in the new year. However, that is no reason to put off a home search. Waiting for perfect conditions can present challenges, like increased demand and lower inventory. Early research using tools like a mortgage calculator may help prospective homebuyers clarify their search by giving a rough idea of how much they can afford and what the monthly mortgage payment might look like. Real estate is a smart investment. There is never a bad time to see what’s out there and start the process. Read on to learn more about the mortgage rate predictions for the remainder of 2024, the benefits of starting a home search now, and a mortgage calculation tool to begin the process.

Mortgage Rates: Five Years in Review

Following historic lows in 2020 and 2021, when the Federal Reserve took emergency actions during the COVID-19 pandemic, which aided in reducing mortgage rates below 3%, the rates of the past few years have shown quite the opposite.  In 2022, rising inflation catapulted home and mortgage rates, delivering a one-two punch to prospective homebuyers. While rates are slowly dropping in 2024 from their 7.08% high in October 2022, they are still hovering above 6%, which is relatively high compared to the 15 or so years leading up to 2022. Still, comparing the 30-year fixed mortgage rates from April 1971 to August 2024, today’s percentages are less than the historical average, according to The Mortgage Reports.

With the fall real estate market in full swing, experts predict only a modest rate reduction for the rest of 2024, within a range of 6.1 to 6.8%. The National Association of Realtors Chief Economist Lawrence Yun said, “The budget deficit remains high, and the various inflation metrics remain above comfort level. That means the mortgage rates will likely be in the 6% to 7% range for most of the year.”

Five Reasons to Buy Now

The new year is only a few short months away, and the outlook is more promising. According to U.S. News & World Report, experts expect the downward trend to continue in 2025, with rates in the 5% range. Percentages won’t likely reach the 3-4% ranges for a while, but at least homebuyers can be more comfortable with interest rates about 2 points lower than they were. Still, many factors affect interest rates, so people looking to buy a home shouldn’t delay based on interest rates alone. Here are some reasons why first time home buyers shouldn’t wait:

Equity—It takes time to build equity. Equity is the value of a property after deducting the charges against it. In other words, debt on the home decreases as the owner makes mortgage payments. Once the owner sells, the equity is the home’s value minus the outstanding debt. Equity reduces debt and provides more financial freedom. For example, a home equity line of credit (HELOC) or loan can help homeowners finance renovations or consolidate other debt. Homeowners can also leverage equity to invest in business or rental properties. Equity is a good thing, and only homeowners benefit from it.

Stability—While there are pluses and minuses to renting and owning, one thing is certain: Renting is less secure. While renters are free of many responsibilities like home maintenance, they are at the landlord or property manager’s mercy for these things. Owning a home ends the uncertainty about whether the rent will go up or if the landlord will put the property on the market. Homeowners control which upgrades and repairs they make and how many pets they keep, for example. Plus, homeownership is more than just a financial investment. It’s a decision to take root and immerse oneself in a community. With this comes the comfort of knowing that everything a homeowner puts into the property and neighborhood will benefit them in the future.

Appreciation—There’s a reason that purchasing a home qualifies as an investment, and buying a car does not. That reason is the increase in value over time, also known as appreciation. Real estate regularly surpasses the purchase price, especially when owners make improvements and care for the property. Other measures first time home buyers can take to ensure their home’s value appreciates include:

o   Scout locations with demonstrated property value increases.

o   Choose neighborhoods convenient to necessities, libraries, and cultural centers with low crime rates and good schools.

o   Find a real estate agent within the area of interest who knows the local market.

o   Consider homes with quality construction in low-risk zones.

Additionally, with consistent maintenance and upkeep, homeowners mitigate wear and tear on the home. When they do eventually sell, they will reap the benefits.

Market unpredictability—Home prices fluctuate as mortgage rates do. While mortgage rates are falling, home prices have risen in 2024, and predictions show that continuing trend in 2025, according to Business Insider. Moreover, the United States has a home shortage that experts estimate is between 4 and 7 million. The demand alone is enough to keep prices inflated. As mortgage rates fall, more people will be on the market for a house, driving competition. It could nullify the savings of a mortgage rate drop. Finally, inventory, demand, and mortgage rates are not the only things that impact the housing market. Government policies, inflation, population, and other factors contribute to the cost of homes. The U.S. housing market is volatile. Without a crystal ball or superpowers, the best time to buy a home remains a mystery.

Tax benefits—The Internal Revenue Service (IRS) grants tax breaks to homeowners, offsetting some of its costs. An accountant can help first time home buyers determine their eligibility depending on their situation. Here are a few potential tax advantages homeowners should explore.

Deductions:

o   State and local real estate tax, subject to a $10,000 limit

o   Home mortgage interest within the allowed limits

o   HELOC and home equity loan interest, with qualifications

Credits:

o   Mortgage interest credit for those with a qualified Mortgage Credit Certificate (MCC)

o   Energy Efficient Home Improvement Credit or the Residential Clean Energy Credit for enhancements of a primary residence toward efficiency and clean energy

How to Use a Mortgage Calculator

A mortgage calculator is a simple tool that shows the amortization schedule, which is the distribution of loan payments over time. It can help first time home buyers understand the base price of the home they can afford, considering the other costs that factor into a mortgage payment. These include the home price, down payment, and the term and interest rate on the loan. Moreira Team’s calculator breaks down the monthly payment into its parts, including principal and interest, private mortgage insurance (PMI, if applicable), property taxes, homeowner’s insurance, and, as needed, homeowner’s association fees (HOA). With just a few clicks, first time home buyers can start the process and envision their future home.

Navigate the Market with Moreira Team

Author Aryn Kyle said, “Don’t wait for the perfect moment. Take the moment and make it perfect.” Putting off buying a home is just keeping you from moving forward.  See what you can afford using our mortgage calculator to create a budget, contact the professionals at Moreira Team, and go for it.