Mortgage Rates Wax and Wane: When do you seize the moment?

The real estate market can create a great deal of uncertainty. When rates climb, month after month, and then ease off a bit and stall, it prompts so many questions. Will it keep going lower/higher? Is now the right time, or did I miss my chance? Can we even afford anything that’s available? And will we have to win a bidding war to get a contract?

It can be especially hard for a first-time homebuyer. Adding to the challenge is rising rents, making the decision to rent or buy more difficult. As a mortgage professional, I’m often asked for advice.

First and foremost, consider your reason and your timeframe for buying a home. Sometimes the primary motivation is the investment and subsequent profit. The scenario for a couple making a job-related move is different and more time-constrained than for a growing family that wants more space or zoning for a different school, or empty nesters looking for a home near aging parents. Knowing how much lead time you have is critical.

Second, look at signs of how temporary or prolonged current conditions are expected to be. This is where a trusted advisor is invaluable. There’s no crystal ball, but there are indicators that can inform educated guesses. The expected trajectory of the 10-year Treasury Yield is a good example, as mortgage rates tend to correlate closely. The Federal Reserve’s anticipated actions, the increase or decrease in new housing starts and the demand for building materials are also good indicators.

Those are two general principles for any market environment. Now for some timely specifics:

Prices
No doubt, home prices have increased dramatically. The U.S. median home price is up a total of 47% over the last five years. The year-over-year increases are starting to slow, however. As of February 2025, prices were up 3.8 percent over last year to an all-time high of $398,400, compared to increases in the teens in a few years ago.

As previously red-hot price gains cool off, buyers may feel less pressure to purchase something immediately and less fear of a massive correction.

History also puts this in perspective. While today’s prices may be high compared to two years ago, the long-term trends show that prices generally trend upward.

Competition
We have either experienced first-hand or heard from friends and family how fiercely competitive the market is. The good news for prospective buyers is that sales are falling slightly – by 1.2 percent compared with February of last year – and there’s a bit more inventory, with the average number of days on the market rising from 38 days last February to 42 days in February this year. This cooling of competition leads to a market with more inventory and sellers who are more willing to lower price expectations in order to get a signed contract. This varies by geography, but overall, it’s good news for buyers.

Interest Rates
After a rapid rise in 2022, followed by declines from fall 2023 to 2024, rates dipped to a two-year low in September of 2024, ever so briefly. Then rates rebounded to 7 percent by mid-January. We’re seeing rates ease a little since then, with an average of 6.67 last week according to Freddie Mac, perhaps the result of improved sales and spring homebuying. There’s still more seller traffic than buyers, according to a survey of NAR member real estate agents. 

Again, history matters. Some of us have lived in times of double-digit interest rates, whereas others may not remember a rate above 5 percent. While rates are no longer 2 or 3 percent, we have to acknowledge that 3 percent isn’t a normal mortgage rate historically. It’s an anomaly that lasted for an extended period.

The most important factor for any prospective borrower is to understand how that rate affects their payment and whether and how the 30-year debt obligation fits into their larger financial situation. Ultimately, it’s important to review your personal finances and speak with a mortgage professional to see if the payment expectation fits within your comfort zone and larger financial goals.

An experienced advisor can also help you choose from available products. For example, if you’re buying a property as an investment and you’ll likely sell or pay off the loan within seven years, A 7/1 adjustable-rate mortgage (ARM) may make sense because you would avoid the adjustment after the seventh year. (This product has a lower-than-average set rate for the first seven years and begins to adjust or change each year thereafter for the remainder of the term of the loan.)

Down Payments
Down payments are a tool to offset the cost of higher interest rates. When rates were 3.000 percent, the cost of borrowing was low, so many buyers were looking to finance as much of the cost as possible. When rates are higher, down payments can lower the rate, and thereby the monthly obligation.

Paying Points
Another side of the coin is purchasing points, where the buyer pays an up-front cost to lower their mortgage interest rate. Someone paying 0.500 percentage points on a $100,000 loan would pay $500 in points. The benefit to the borrower is a lower interest rate. Points paid and the related interest reduction will vary by lender and mortgage product.

Homebuyers have many factors to consider. Seek the help of a trusted advisor to walk through them with you as you consider your timeframe, means and method for purchasing a home.

Spencer Jones is a mortgage manager based at Pinnacle’s Tysons Corner office in the National Capital Region. He can be reached by email at Spencer.Jones@pnfp.com or by phone at 703-663-3194. All loans are subject to credit approval. Ask for details.