What Happens When Rates Drop?

An interesting excerpt from CBS News, What happens when mortgage rates drop? 

Should you wait?

August 16, 2024 / CBS News           By Angelica Leicht           Edited By Jennifer Earl

Buyer competition could increase soon

The Federal Reserve's first rate cut of 2024 is expected to happen in September, and when it does, it could cause homebuyer competition to increase. After all, when the Fed slashes its benchmark rate, it's likely to cause mortgage rates to dip as well.

While lower mortgage rates are a good thing for your wallet, they also tend to increase the competition, as many of the buyers who've been waiting on the sidelines will re-enter the market. But these buyers will be entering a market that already faces inventory challenges. 

And, as we've seen in the past, more buyers competing for a limited number of homes can lead to bidding wars and inflated prices, making it more difficult and potentially more expensive to secure your desired property. This could potentially price out you and other buyers who might have been able to afford the home under current conditions.

By locking in your rate and moving forward with your home purchase before this anticipated rush, though, you position yourself ahead of the crowd. This proactive approach could mean the difference between securing your dream home at a favorable rate and finding yourself priced out of your preferred market. 

The savings may not be worth the wait

Another reason to lock in your mortgage rate now rather than waiting is the reality of how much rates are likely to change. While there's anticipation surrounding the Fed's actions, the actual impact on mortgage rates may be less dramatic than some hope. 

The initial Federal Reserve rate cut is anticipated to be just 0.25%. This relatively small adjustment may not translate to a significant drop in mortgage rates. Plus, the financial markets tend to price in expected Fed moves before they happen, so by the time the Fed cuts rates, much of the impact may already be reflected in current mortgage rates. This means that the impact of a Fed rate cut on mortgage rates could be minimal.

But even if mortgage rates do decrease slightly, the potential savings need to be weighed against the risks of waiting. Is it really worth losing out on your preferred property or facing increased competition and higher home prices to get a slightly lower rate? In some cases, the opportunity cost of waiting could far outweigh any minor rate reduction. 

The bottom line

The current mortgage market presents a unique opportunity for homebuyers. With rates at a 15-month low, the threat of increased competition on the horizon and the reality that future rate drops may be minimal, the case for locking in your mortgage rate before September is strong. By acting now, you position yourself to take advantage of favorable conditions and potentially save significant money over the life of your loan. "