Big news dropped on September 18, 2024—the Federal Reserve just cut interest rates for the first time in years. This has everyone asking: Is now the right time to buy a house? Well, it’s complicated.
Sure, lower rates can sound like a good deal, especially since the 30-year fixed mortgage has been sitting between 6.25% and 6.5% for a while. But now that rates are dropping, you might be thinking, "Should I jump in before prices go up?" And that's a fair question.
But here’s the thing: Trying to perfectly time the market… It’s nearly impossible. Rates will always fluctuate, and so will home prices. What really matters is whether you are ready to take the plunge.
At the end of the day, it’s less about the current interest rate and more about whether you’re personally and financially ready for homeownership. So don’t rush it—focus on what you can control, not what the market's doing.
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Video Transcript:
Hey, this is Alex. Actually, it's episode 119 of Money Hacks, and today is the first day of a two-day Federal Reserve Board meeting.
You're probably watching this, and it's already happened. But the Federal Reserve, Jay Powell, chairman of the Federal Reserve, is meeting with the FOMC to set interest rate policy. And what you probably already know is that maybe they've cut interest rates for the first time after a two-year period of raising rates. They set the federal funds rate, which has implications across a lot of different types of investments and debt instruments that impact individuals, consumers, businesses, and so on—namely, things like your emergency savings and your money market funds, which are driven by the federal funds rate.
And while not directly, longer-term interest rates like mortgage rates are also indirectly driven by the federal funds rate. The 30-year fixed-rate mortgage, as we stand in the middle of September, has already started to come down from the recent highs we saw earlier this year and last fall. Right now, the average 30-year fixed mortgage is somewhere around 6.25% to 6.5%.
For some individuals over the last five or six years, that seems like a high interest rate. But for those who know historically, or those who were buying houses back 20, 30, or 40 years ago, this is kind of in the normalized range. Now, this leads to a question we've been getting from a lot of investors: Is now a good time to buy a house?
Well, I know interest rates are still on the higher end of where they've been in the last few years. But should I wait for rates to come down, or are prices going to go higher as rates come down? What's the perfect time to buy a house?
That's a tricky question, and there's not a great answer for that. There's an ebb and flow right now. While interest rates are a little higher, home prices have stabilized a bit. If we do see rates start to come down, perhaps that drives more buyers into the market, creating more competition to buy houses—and therefore pushing home prices higher.
But there are a lot of hypotheses and variables that go into that. So instead, what we talk to investors about are the components of your financial picture that you can control. Those would be the metrics to look at when deciding the right time to buy a house.
First, make sure you’re in a position where you have enough money set aside for the down payment, closing costs, moving expenses, and any repairs you need to do. You should still have money set aside in a rainy day fund or emergency fund after purchasing the house.
That's one piece, ensuring you’ve got that in place. The other is going through an analysis of your financial picture and cash flow, feeling comfortable that when you buy a place, your monthly mortgage fits into your monthly spending plan. Meaning it’s not going to exceed 30%, or maybe 40% at the top end, of your monthly take-home pay.
Those are two really important criteria that we think should be reviewed and checked off before you get into the market of buying a place. The third is feeling comfortable and confident that you’ll be able to live in this property for seven, eight-plus years before there's a need to move or sell it for whatever reason.
So those are the things I’d rather focus on than trying to time the interest rate environment or the housing market perfectly. Those things are always going to be fluctuating, and it’s almost impossible to predict the exact right time to buy a house—aside from knowing when it’s something that aligns with your financial picture, your goals, needs, and wants.
I hope this video is helpful and gives you a better idea of what’s happening in the current interest rate environment and what it means for those interested in getting into the real estate and homebuying process. Thanks, and we’ll see you next time.