Market Update: Recent Drop in Interest Rates

Is It Time to Buy? Falling Mortgage Rates Could Be Your Green Light

If you've been on the fence about buying a home because of the high mortgage rates, the time to act might be now. After a prolonged period of rising rates that kept many buyers out of the market, we're finally seeing a shift. Economic conditions have started pushing mortgage rates downward, and just recently, the Federal Reserve cut the Federal Funds Rate for the first time since their rate hikes began in 2022. While the Fed doesn’t directly control mortgage rates, its decisions often set the stage for future trends — and in this case, the expectation is that mortgage rates could drop further.

Why This Matters for Home Buyers

Lower mortgage rates make buying a home more affordable, which is great news if you're in the market. The more rates drop, the more you can save on monthly payments. And as buyers come back into the market, now is the time to start looking seriously if you've been waiting for better conditions.

Lisa Sturtevant, Chief Economist at Bright MLS, explains: “A drop in the cost of borrowing will help fuel more homebuyer demand." As rates fall, you'll see more competition for homes, which means that the earlier you get in, the better your chances of securing the home you want at a more affordable cost.

The Link Between Mortgage Rates and Buyer Activity

There’s a clear relationship between mortgage rates and buyer activity. As rates decrease, the number of mortgage applications rises. This connection shows that as borrowing costs fall, more buyers are encouraged to enter the market.

The Mortgage Bankers Association’s Mortgage Application Index, which tracks mortgage applications, has been trending upward as mortgage rates dip. This is a sign that more people are re-engaging in the buying process.

What Does This Mean for Home Buyers?

With mortgage rates falling, now could be an opportune time to take the next step. According to the National Association of Realtors (NAR), home sales increased in July, signaling that more buyers are making moves as affordability improves. Edward Seiler, AVP of Housing Economics at the Mortgage Bankers Association, expects this trend to continue: “Slower home-price appreciation, coupled with lower rates, will ease affordability constraints and lead to increased activity in the housing market.”

For you, this could mean being able to afford more home than you initially expected, and with more homes becoming available, there’s a better chance to find your dream property. However, acting sooner rather than later is essential, as more buyers entering the market could lead to increased competition.

Should You Lock in a Mortgage Rate Now?

Mortgage rates are currently sitting at around 6.13%, their lowest level in more than two years. Locking in a rate now could help you secure lower borrowing costs before any unexpected economic shifts occur. While some experts believe rates may continue to drop, there’s no guarantee. Waiting could expose you to the risk of rising rates if conditions change.

Securing a low rate now can also help you move quickly when the right home comes along. With more buyers entering the market, waiting too long could mean missing out on properties you love or facing stiffer competition from other buyers.

Tips for Getting the Best Mortgage Rate

If you're ready to buy and want to lock in a great mortgage rate, here are some strategies to consider:

• Shop Around for Lenders: Mortgage rates can vary from one lender to another. Getting quotes from multiple lenders increases your chances of finding a competitive rate.

• Improve Your Credit Score: Lenders offer the best rates to borrowers with strong credit. If your score could use a boost, consider paying down outstanding debt and making timely payments to improve your chances of qualifying for the best rates.

• Consider a Shorter Loan Term: Shorter-term loans, such as 15-year mortgages, typically offer lower interest rates than 30-year loans. While your monthly payments might be higher, you’ll save on interest in the long run.

• Buy Mortgage Points: Mortgage points are fees you can pay upfront to reduce your mortgage rate. While it requires a higher initial investment, it can save you money over the life of the loan, especially if you plan to stay in the home for several years.

Will Mortgage Rates Keep Falling?

While the Federal Reserve’s rate cuts have led to lower borrowing costs, it’s unclear how much further mortgage rates will drop. Mortgage rates are often tied to the 10-year Treasury bond yield, which can fluctuate based on market conditions. The Fed’s recent actions have already been factored into mortgage rates, so we may not see significant drops in the immediate future.

However, even if rates continue to fall, locking in a low rate now ensures you won’t be caught off guard by any unexpected rises. Economic factors can change quickly, and rates could climb if inflation picks up or global events shift market sentiment.

The Bottom Line

The recent drop in mortgage rates presents an excellent opportunity for home buyers. With borrowing costs falling and more homes becoming available, now may be the perfect time to act. Whether you're a first-time buyer or looking to upgrade, taking advantage of these favorable conditions can help you get the home you want at a more affordable price.