Why Buy Before Rates Drop?

High rates slow down buyer activity and prevent home prices from going up. 

When it comes to interest rates, people generally believe that lower rates mean higher savings, but that’s not always the case. Understanding how high or low rates affect home prices and sales is crucial for buyers to get the best deal in the market. That’s why today, I will explain how interest rates impact home sales and what it means for buyers: 1. Direct impact on mortgage payments. The most obvious way interest rates affect home sales is by changing mortgage payments. The Federal Reserve sets the baseline interest rates that influence lending rates. Although mortgage rates are not directly tied to the Fed's rate, they tend to move in tandem. When the Fed lowers interest rates, mortgage rates typically follow, leading to lower monthly mortgage payments. This is excellent news for buyers, as lower mortgage rates mean more affordable monthly payments, making it easier to purchase a home.

"Knowing how interest rates affect mortgage payments can help you make smarter buying decisions."

2. Influence on home prices. When borrowing money becomes more expensive due to higher interest rates, the rate at which homes appreciate in value slows down. In other words, higher interest rates can temper rapid price increases. However, when rates are high, it also means fewer buyers are in the market, which can stabilize or reduce home prices. Currently, rates have been rising for the last 18 months, but when rates decrease soon, we expect home prices to rise as well.  3. Effect on market activity. The third way interest rates impact home sales is by driving market activity. When interest rates go down, the market tends to heat up. Lower rates attract more buyers, increasing demand and, in turn, driving up home prices. Every time there's even a slight decrease in rates—such as a quarter-point reduction—there is a noticeable uptick in market activity. This trend is expected to continue, and we could see a substantial increase in market activity over the next 3 to 6 months if the Fed officially lowers interest rates.