What do falling interest rates mean for buyers in the short and long term?

Whether you’re just starting to think about homeownership or hunting for the perfect place, navigating the housing market can feel overwhelming, especially with the current landscape of interest rates. In recent months, we’ve seen a downward trend and one that’s expected to continue. Understanding how these rate drops impact the market, both in the short and long term, can help homebuyers, especially first-timers, strategically plan a way to finally make their entrance.

SHORT TERM: THE CURRENT BUZZ

Let’s first talk about the here and now. Yes, interest rates are dropping, which is great news. However, it’s important to keep in mind that while rates are lower than they’ve been in recent times, they’re not quite as low as they were pre-COVID.

More inventory, more choices

One of the good things about the current market is the sheer amount of inventory available. There are plenty of homes on the market right now, which means buyers have a lot more choices.

Buyers are feeling ready

With every consecutive drop in rates, more potential buyers are getting ready to dive into the market. Picture this: All those people who were sitting on the fence, waiting for the perfect moment, might just decide now is the right time.

Every rate drop counts

Every single rate drop means more people might decide to jump into the market. So, if you’re ready to make a move, it might be wise to act sooner rather than later. More buyers can mean more competition, and while that’s great for the market, it means you’ll need to be sharp and ready to act fast on the home you want, and that home prices could rise again.

LONG TERM: THE BIGGER PICTURE

Now, let’s take a step back and look at the bigger picture. What does the future hold if we remain on this trend of declining rates?

The renewal wave

A lot of people who locked in low rates a few years back have renewals coming up in 2025, 2026 and 2027. For those with variable rates and fixed payments, this could call for some serious changes. If rates don’t drop quickly enough, they might face significantly higher mortgage payments. Some might even be forced to sell because of it.

A soft landing

If rates drop fast (which, to be honest, isn’t likely), we might see a soft landing where prices could stabilize gently. But with the current slow and steady drop, it’s more likely we’ll see a gradual softening of prices. This could be good news for first-time buyers, as it means a more stable market and potentially more affordable options down the line.

Hope for stability

The gradual decline in rates could lead to a more stabilized market. This is what we’re all hoping for because a stable market is a healthy market. It could mean that new buyers, like you, have a better shot at finding a home that fits your budget without the crazy price spikes we’ve seen in the past.

What should you do next?

1. Stay informed: Keep an eye on interest rates and educate yourself on market trends so that you feel prepared and ready to move forward.

2. Get pre-approved: This is your golden ticket in a competitive market. It shows sellers you’re serious and ready to go. You can apply for a pre-approval in just five minutes with Homewise, and one of our dedicated mortgage advisors will walk you through the process.

3. Work with a professional: A good mortgage specialist and realtor can help you navigate these waters – helping you find the best rate and mortgage that suits your needs.

4. Be ready to act: With more buyers potentially entering the market, be prepared to move quickly when you find the home you want.