If you've been thinking about buying a home, you're probably wondering if (and when!) mortgage rates will come down. So the recent news that ING Economics predicts that The Federal Reserve will cut rates 6 times starting in the second quarter of 2024 is probably music to your ears!

But it also might be making you think that you still have a few months before rates start getting better, and that you should hold off until they lower rates next year to start searching for a house.

However, when The Federal Reserve raises or lowers rates, it doesn't directly impact mortgages. Mortgages are tied to the 10-year Treasury yield. But to say that what the Fed decides doesn't affect mortgage rates isn't true. Obviously they've gone up considerably since they started hiking rates, and as such, one should expect them to come down when they lower them.

The reality is, mortgage rates don't necessarily come down when the Fed changes rates. In fact, they tend to go up or down ahead of Fed policy moves, according to Business Insider.

Mortgage Rates Are Already Coming Down, But…

The National Association of Realtors recently reported that mortgage rates have already been dropping for the past couple of weeks, and are almost back down to 7%.

But they also note in the article that it appears some buyers may still be waiting for rates to come down further before buying a home. When the rates decreased from 20-year highs of nearly 8% just six weeks ago, it initially spurred some buyers to take action. But mortgage applications are still 17% lower than a year ago.

Fewer Buyers Are Willing to Wait for Better Rates

While rates coming down to around 7% may not be enough for some buyers, the number of prospective homebuyers willing to wait for rates to come recently dropped from 85% in June 2023, down to 62%, according to Bank of America.

Their research also revealed that buyers were not just willing to accept rates as they are, but to also sacrifice several features to find their home quicker. For example, nearly a third of people surveyed said they'd forgo buying a brand new home, living near family, access to public transportation, or living in an area with historical charm.

It seems that, for some buyers, this is the new normal, and they're willing to do what it takes to buy a house now rather than wait for rates to come down even more.

Are They Going to Miss Out on Better Rates in 2024?

The obvious question for anyone sitting on the fence about buying is whether rates will come down substantially more in 2024. This CBS News article sums up the answer to that question rather well with three possible scenarios:

• Rates could fall to 6.5%
• Rates could fall to 6%
• Rates could stay about the same… or even increase!

Unfortunately, that's about as accurate of a prediction as you can hope for. It's almost impossible to predict what rates will do in the future. You can only go by what they are at any given moment, and base your decision upon whether buying a home makes sense for you at the moment.

What's the Risk of Waiting to See if Rates Come Down?

If you're hoping and waiting for rates below 3% again, that's probably not going to happen in the next year, or maybe ever again. Rates were historically low for a long time, for a variety of reasons driven by major economic events. This is a long overdue course correction that The Fed is trying to accomplish.

However, it's understandable if you're weighing whether or not to wait and see if rates drop to 6%. A 1% drop would certainly make a dent in your monthly payments, and it's not out of the question for them to come down that much.

The issue you may want to consider (and avoid) is whether rates coming down that much will cause more buyers to flood the market, increasing your competition, and possibly driving home prices up again, or more. If that happens, it could erase any savings the lower rate affords you, and make it more difficult to even buy a home, unless the number of homes for sale jumps dramatically higher in the coming months as well.

It can take months to find a home, successfully negotiate a contract, and close on it.
So if you're on the fence about buying now, or waiting to see what happens, it probably makes sense to at least start the process of looking at the available homes for sale, and being open to the possibility of buying one if it suits your needs and budget. Perhaps rates will have come down a bit more by the time you find the one you want to buy, and you'll get a house you want before all of the other buyers who are waiting to see what happens re-enter the market!

The Takeaway:

The recent news that The Federal Reserve will cut rates 6 times starting in the second quarter of 2024 is great news for anyone thinking about buying a home. But buyers may not need (or want) to wait until they do, before starting their search for a home.

While Fed rate cuts do impact mortgage rates in some ways, they're actually tied to the 10-year Treasury yield, and often adjust up or down ahead of any Fed announcements. In fact, rates are already down a good amount. Whether they'll come down substantially more remains to be seen, and is impossible to predict.

Assess whether hoping and waiting for rates to come down more will outweigh the potential increase in competition from other buyers that may occur because rates come down further, and consider starting your home search now.