Last night, I went to a Cirque du Soleil show. During the show, I stepped out of the amazing performance for a bio break just as the intermission started. 

As I was exiting the restroom, I ran into a 100-mile line. I just barely got ahead of the herd.  

My timing last night was luck. But when it comes to the housing market, you’ll need more than luck to get the timing right. 

So, you are waiting for housing interest rates to drop before finding a new home? Whether you’re purchasing a home, building a new home, or renovating your current home, let’s test each scenario against the reality of the market now versus what may occur after interest rates drop.  

The post-COVID housing market 

Over the past few years, a few factors have contributed to an unfavorable market for buying a new home. Housing demand and supply chain limitations led to higher housing prices.  

At the same time, climbing interest rates probably discouraged you from buying a new home last year. And you’re not alone; over the past two years, the number of homes sold has declined.  

While those numbers typically indicate lower demand, many people may still want to build a home but are just waiting for better market conditions. This means we could be entering a period of pent-up demand.  

A visualization of how high-interest rates affect housing 

Purchasing a new home: In conditions like these, no one is making offers over the asking price. No one is offering to purchase without an inspection. No one is asking for cash and/or a fast closing. Lenders are working through tens of mortgages instead of hundreds.  

Building a new home or renovating: When there are high interest rates, architects, civil/ structural engineers, interior designers, have a backlog that spans weeks rather than months. Your design team may be working on four projects instead of eight. Municipalities might have 20 projects on their desks for permit review rather than 100. Windows and appliances have a 4/12-week lead time, instead of 30/52 weeks, as they were 6-12 months ago.  

These conditions suggest a more streamlined process for those considering construction or renovation projects.  

But those rates?!  

Building or buying a house in 2024 

While we can’t be certain of the housing market in 2024, economists are signaling hope for home buyers. In December 2023, the Federal Reserve (the Fed) announced that it plans on three federal funds rate cuts over the course of 2024.  

The federal funds rate is not the same as mortgage rates, but it can affect borrowing costs for shorter-term loans. The federal funds rate is the rate that banks pay each other in interest for overnight loans of reserves deposited at the Fed.  

When the Fed raised this interest rate to combat inflation after 2020, the increases made it more costly for homeowners to borrow money or take out credit. But if the Fed lowers that rate, the reduced borrowing costs could make loans more affordable. 

There are options other than the traditional 30-year fixed mortgage that could work better in conditions like this. For example, a 3/1 adjustable-rate mortgage (ARM) is a rate that remains fixed for three years and then goes variable based on the current interest rate. So, if the ARM loan has a 30-year term, the interest rate is fixed for three years and then adjusts annually for the following 27 years.  

You could also consider starting with a good-for-now loan and refinance later, based on the market in a year or two.  

Get ahead of the line 

With the way the market changes direction, it can feel like you’re being pulled along like a marionette puppet. Incidentally, they had a huge one of those during the Cirque show last night as well.

You can take your power back by doing your research, talking to experts, and making informed decisions. If you want to buy, please reach out. We’ll connect you with our network of realtors and inspectors to help you invest in the right home for you.  

– Frank Wickstead