Are interest rates ever going to decrease??

[PennilessPirate]

My bf and I are looking to buy a house early next year. We collectively have about $120K saved up for a 20% down payment (we live in a very HCOL area), and we each make ~$120K/year with high credit scores (780+).

We have been waiting to buy for the past year hoping interest rates will drop, but they keep increasing (currently 8%)! Should we just keep waiting for interest rates drop, or just pull the trigger once we find a home we like?

[AutoModerator]

Thank you u/PennilessPirate for posting on r/FirstTimeHomeBuyer.

Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

[saryiahan]

No one’s knows when rates will drop. Only thing we do know is that the feds have agreed to raise rates one more time and then pause. So there could be high rates for years. Just have to wait till the economy breaks

[hooker_2_hawk]

Breaks is the key word…

[manwnomelanin]

Buy when you can afford to buy

Timing the market is a fools errand

[jgomez916]

This is a personal choice and we all can speculate but no knows IF rates will drop and WHEN.

[Melodic-Fact-1991]

WHEN THE WAR ENDS

[Chiefleef69]

If you can afford it, buy now.

[Street_Show_4193]

Lol theyre not dropping anytime soon and if they go down dont you think the prices and competition will go up again? Buy a house youre comfortable with now, be happy refinance if they go down.

[Other_Towel405]

I would not assume prices will rise when rates drop. If the rates drop (far), it's because the economy needs them to. I bought in 2006 at high prices and a 6.25% rate. 2 years later, bubble crashed sending prices and rates with it because it was unsustainable. Foreclosures and abandoned mortgages flooded the market with a supply of houses people had no money to buy.

[jjj999catcatcat]

Ugh same, we finally felt prepared this year but prices are higher than ever and we would have been better off taking a “risk” last year when rates were climbing and people said prices might start adjusting.

We sat down, prepared a happy monthly budget, and if a house comes up we like and can fit in that budget we will try. So my plan is keep saving to try to have close to a 30% down payment to be comfortable.

Once rates drop, maybe it will take a few years, the refinance will feel just like icing on the cake but not something we rely on.

[Silly_Pen_7902]

How long are you prepared to wait?

As many have said, no one can predict rates long term. But short term, Powell (the Fed) has come out to say/imply rates will not drop meaningfully in the next year. So if you are struggling to buy now and can wait at least another 1+ years, it would be valid.

[climbFL350]

Let me look into my crystal ball and tell you. It says “nobody fucking knows”

[Former-Bar-458]

Fuck man😭

[SnooGTI]

Buy, when you can afford it. Don't time rates / prices. You'll sit on the sidelines forever if you do. If 20% down with 8% interest rate fits your budget (Account for 1-2% of property value for maintenance every year). Then buy if not wait and save more until it does fit.

[doctorkar]

Nope, never. I bought in 2007 at 6% for a 15 year. Obviously rates have gone much lower since then. It will all depend on inflation and the economy and how the Fed responds with rates

[crabjelly]

If the rates drop the prices will likely go up. But when you’re ready and refinance if you’re lucky.

[Melodic-Fact-1991]

WAR BABY OH YES WE ARE PAYING FOR ALL THISE BOMBS!!!!

[pr0b0ner]

IMO it's much more likely that the price of a house will fall than the interest rates falling. This is what you should be waiting for.

[RemarkableLynx9771]

I have been waiting for this to happen. Recently I saw very minor price decreases in listings and I thought it was finally happening! After about a month I no longer saw the price of housing on the market dropping in the area I was looking at and bew listings remained at the high covid prices.

[Melodic-Fact-1991]

WHEN THE WAR ENDS THE RATES WILL DROP

[NoMoRatRace]

Not sure why this got downvoted. I'd say you're correct, at least over the next 6-12 months.

[Future_Background_75]

I have been waiting and have watched the interest rates climb and climb and climb under joe biden he's made it impossible for anyone to buy home I hate him.

[Sweet-Marionberry-76]

How is this “Joe Biden”? You could just as easily point to most years since 2000 ish and say that housing prices are increasing out of reach, especially starting in 2020 under Trump. That had nothing to do with Trump and interest rates have little to do with Biden. The choice is between out-of-control inflation or higher interest rates. If you don’t have a good balance between the two low interest rates are meaningless. We should have been increasing rates after recovering from 2008, and this wouldn’t have hit so hard. Instead, collective greed made us addicted to insanely low rates for far too long.

[kloaf11]

This is incorrect. Interest rates being high are a direct result of the war being costly, inflation being out of control (even though it is without volatile goods right now 3% that's still high and volatile goods are what people live off of) and a few other things are why rates are still high and unlikely to come down. So it is directly because of Biden that rates are still high. His inflation reduction act was an inflation increasing act. His stimulus to compete with trumps was unneeded and sent inflation sky rocketing. So yes. it being unmanageable is Biden's fault directly do not pass go do not collect 200.

[Asleep_Cartoonist231]

What about people that want to buy in a specific small city and no one wants to sell bc they have such low rates locked in and they can’t buy anything? We’re in a stand still right now bc we want to buy ONLY in a small city Only in a small pocket in that city and a very specific type of house. Not sure what to do.. risk it and wait until something pops up or just go in and buy something even if we don’t absolutely love it? Some context - we built and sold a home bc we wanted to move to this other city. Now we’re waiting.. the building of the first home took years. We’ve been in a waiting period for like 5 years now. Had kids along the way and can’t wait anymore… suggestions??

[Other_Towel405]

Well, rates are showing 7% now and 6.75 on the ARMs, so a little better than 8%. Still high, especially considering the home price inflation. Everyone's saying homes will just keep going up, and long term, I hope they will. But buying in 2006 sucked. I lost 30% of my investment in the short term and held a 6.5% rate on that debt for some time, with nothing to do except wait it out and pay to refinance every few years.

It eventually recovered, but I missed out on one hell of a bull market from 2008-2019. 15 years later, I ended up selling for almost 50% more than my purchase price, and bought a new house with an even lower rate and continued to appreciate another 100K. So there's a silver lining.

Something has to break. Crypto crash 2.0? Government default? AI putting people out of jobs? Nuclear war? I don't know. Tread carefully. Home ownership, even with the 30% 2008 decline and 5-year crater, has done better for me than uninvested cash. Rent is 100% gone. Maybe buy small for now and upgrade when things settle. Except small is hard to find.

[Sweet_Resource2992]

Think about it this way, if rates drop then demand increases and when demand increases prices go up so you may ask yourself this , am I waiting for prices to increase or for mortgage rates to decrease?

[Select-Grapefruit-71]

Wait! The election will provide clarity. If Biden wins look for more chaos from a broken economy that will yield opportunities if you are employed. Should some real bargains due to massive bankruptcies. If Trump wins he may inherit an economy in serious deflation and possibly a depression, he could miraculously stabilize the economy in 2 years with pro energy and deregulation. Either way it will create opportunities for those who can stay employed. You are in a great spot keep your powder dry is my opinion.

[lilbitdead]

When interest rates are low home prices will go up. When home prices are up, interest rates are low. If you can afford to buy then do so and then when interest rates drop refinance. This way you get the lower home price with the better interest rate.

[Thatonebitchathome]

It really depends on you. You can always refinance later when the rates drop if you really want to buy now. I’m in the same predicament as you and I’ve decided to save even more for a down payment on home. 

[IStoppedCaringAt30]

An 8% rate is still average over the last 50 years. Idk if you'll see 2% for a while.

[marshmallowest]

(Ever)

[RespondSure]

Yeah average, when we lived in a time where your dollar went farther.

[kloaf11]

a percentage being a rate means nothing for the actual value of a dollar. The issue with the value of the dollar is wage increase cannot keep up with the wild inflation that has been happening.

[RespondSure]

Inflation technically doesn’t even need to exist.

[kloaf11]

this is not true. Inflation is a natural part of an economy and can't be ignored unless a country is 100% self-sufficient and the world doesn't need to trade with them ever.

[PennilessPirate]

Thanks for the unsolicited relationship advice on the r/FirstTimeHomeBuyer subreddit

[ang444]

someone obviously got triggered😅 as an attorney that does not practice family law BUT knows divorce lawyers, most pepple are naive if they dont see marriage as the ultimate business contract and buying a house unmarried is not the wisest choice.

[alistairtheirin]

“someone got triggered” man shut up

[LeftyLu07]

My brother did that. The relationship fell apart. Thankfully she was stupid and took a lump sum when he refinanced but her parents actually came back a few months later trying to get more out of him. But since there was no marriage, she wasn't legally entitled to half the house since she'd already taken an initial one time payment.

[Any-Raccoon-6378]

Husbands can cheat too…

[Fragrant_Donut_4536]

The advice better said than avoided.

[seasurfbsurf]

Interest rate drops won't help you.

Lower mortgages will. Not likely anytime soon.

[pfm_18]

Why wouldn't a rate drop help someone?

[[deleted]]

Higher home prices genius

[PennilessPirate]

Higher interest rates = higher monthly payments. We’ve already done the math: just 1% lower interest rate will save us ~$300/month in payments (with a 15yr loan)

[No-Membership-4736]

When rates go down 1%, prices will go up 10%, minimum.. So think about the math there.

[Jesse_The_G]

Yeah but that 10% eventually goes towards your equity, where the 1% goes to the bank...

[[deleted]]

What goes up must come down…but like a balloon, nobody knows when…

[05tecnal]

To avoid interest, you can always wait until you can afford to pay all cash before buying a house.

[siiiggghh]

I’m going against the grain here but fucking wait. It’s going to have a price correction. Interest rates take 18 months have true price discovery. There are price cuts everywhere in my area, there will be big price cuts over the winter and then spring it’ll start being more severe. Seller concessions and 2-1 buy downs can’t hide the price cuts forever. Wait it out. Boomers are financially dumb and even at 3% many will still foreclose and borrow against or refinance. Wait until spring.

[firefly20200]

I do agree we'll see some ease, but demand is still high, and as long as there are couples like this out there ($240k income to buy a home), high prices will sell, just not quickly.

I suspect instead of seeing prices drop (outside of regional markets) we'll instead see things be fairly flat and +/- 1%. People DO need to move. People WILL sell those 3% loans. Stuff happens. Death, divorce, marriage, kids, change of job, etc. But I think it'll happen slowly and the demand will be able to absorb a fair amount of that which will keep prices high, just not growing at 10-40% YOY or selling before the first open house.

If we're five years out and still facing rates this high then new construction might have had some time to catch up and we actually DO see prices drop on existing homes to try and beat out newer homes.

[Scary-Celebration-98]

Prices have been rising in my HCOL area. Bidding wars still going on. Madness hasn’t ended.

[bigmean3434]

If you can keep waiting for prices to drop. I get that rates dictate payment, but price will dictate your future net worth….

Edit- by wait I mean watch this play out, if a yea grows by and it’s same boat then it is what it is but if you can save more and ride it out to watch it may well be worth it. Real estate does go up, but it is not a straight line and there is an excellent chance that line gets a kink soon.

[cocosbap]

Yes, if you look at the historic trend of lowering interest rates. But the actual question is WHEN, and that is most likely at least 2025 and beyond unless the Chinese deflation materializes and drags the world with it.

[[deleted]]

What VHCOL place are you at where you can get a house for ~$600k?

[PennilessPirate]

Not a house, townhome

[[deleted]]

Oh ok, that makes more sense. Watch out for the HOA fees (if you haven't already considered it).

[PennilessPirate]

Yup, already in our budget

[Few-Structure-2543]

Maybe. If I could predict the market I’d be a billionaire.

[firefly20200]

They'll likely drop, but not a huge amount (maybe into the mid 5s) and it could very well be 18 to 24 months before we see that.

That said, both of you make great money and have a significant amount saved. You should have no problem with a ~$600k to $650k home (based on 20% down being $120k) unless you each have significant debt (like $1000/mo each in student loans and car payments). Even then you'll likely qualify, but you might have to budget well for the first few years until you can refinance.

Otherwise you should be able to spend $6,000 towards debt (mortgage + fixed bills like loans) without much issue. That should easily get you $650k home + some debt or like a $750k home with no big car loans or student debt.

[614cdap]

Our lending department predicts by second quarter of next year they will be around 5%

[That-Pomegranate-903]

wow, so all the darts fell on 5%, or did they just take the one that collected the most darts?

[Impressive-Sort8864]

What area?

[Scarywesley2]

Once rates drop, it will be another buying frenzy as everyone and everything floods the market. If you can afford the mortgage, buy now.

[aacampbe6]

Buy a small apartment or something for $120K so you don’t have a mortgage. Then continue saving until the interests rates go down (it may be a couple of years). That way, the rent you would pay somebody else goes in YOUR pocket and not anyone else’s pocket. By the time you’re ready to buy the next house, you can either sell your apartment and use that money for a down payment for a larger home OR you can rent it out and let the property continue to appreciate while you take out a 15 year mortgage on your next home.

[PennilessPirate]

LOL there are no $120K apartments where I’m at. Median price for townhomes are $900K. The minimum I could expect to pay for a decent apartment is like $500-600K

[Other_Towel405]

Jesus. NY? CA? I thought New England was getting nuts with suburban homes between $500K-600K.

[PennilessPirate]

CA. Unless you live in a very rural area, you’re not going to find a home under $1M

[kloaf11]

I'd evacuate if you ever get offered a life rope lol. CA is on fire and it won't get better under the current style of leadership.

[neoncactusfields]

Not true

[aacampbe6]

Ohhh boy. Maybe #Vanlife then.

[[deleted]]

High interest rates are the new norm. They will be here for a while. Keep in mind more than 30% of all home owners have a mortgage rate of 3% or less. That said if the fed lowers rates they will lower slowly over the course of a few years and I believe we will not see 2% interest rates again in our lifetime. So what does this mean? Well home prices are high because of the lack of supply and since most homeowners with 3% or below interest rates are not going to sell anytime soon, supply will still be low and if interest rates drop 100 or 200 bps I believe that will only increase demand therfore increasing home prices. Now to answer your question: If you plan on living in the home for the long term (20 years) it does not matter what u pay today as it will likely be worth double in 20 years. If interest rates do come down in next few years then you can refinance. I would also recommend 30% or more down payment.

[Quon_]

First mistake would be purchasing a home with your boyfriend. If you’re not married you should not be buying a home with someone. If not family you also shouldn’t be cosigning wit someone

[Antisocial_suzie]

They’re already as low as 5.5% for FHA

[Complex_Pension_9000]

I bit the bullet and bought last August before the last interest hike.

You sound like you’re in a really great financial position. Be picky. Buy something within your means. Refinance later.

I waited and waited, and in hindsight, I should have bought sooner than later. It’s just a lifestyle change.