More than half of potential homebuyers are holding off on making an offer in hopes that mortgage rates will drop to 5%, according to a surprising new survey.
The survey from Neighbors Bank, a mortgage lender focused on first-time homebuyers, found that 72% of potential homebuyers have either delayed or entirely paused their home search until rates improve.
A number of other factors are causing potential buyers to hesitate, including economic uncertainty, hope that home prices will drop, and the 18% who reported that they are still saving for a down payment.
However, an impressive 34% of survey respondents said that they would buy immediately if mortgage rates dropped to their target tomorrow, with the average buyer naming 5% as their target rate to buy.
Despite the importance many potential homebuyers place on mortgage rates, a surprising number guessed the rate incorrectly at the time of the survey.
When Neighbors Bank performed the survey in July, the national weekly average for a 30-year fixed-rate mortgage was 6.49%, according to the Freddie Mac Primary Mortgage Market Survey (PMMS). Only 35% of survey respondents selected the correct range, while 45% thought the rate was over 6.5%.
As of Aug. 27, Freddie Mac reported that the average 30-year fixed-rate mortgage was 6.66%.
Steve Jolly, a Nashville real estate broker and the founder of NashvilleRealEstateNow.com, says he hopes that mortgage rates will drop below 6% in the next five years, but warns that attempting to time the market is tricky.
“It’s not smart to try to time the market. The best time to buy is when you are ready to own a home,” Jolly tells Realtor.com®. “When rates drop, you’ll also see prices rise due to demand. So, you’ll likely leave equity on the table and you may get priced out of your desired neighborhood.”
Nick Panize of Westgate Capital Ventures agrees that waiting for a specific interest rate could have a negative impact on the rest of the purchasing price and process. One big reason: If you’re waiting for a “magic number,” it’s likely that tons of other potential buyers are waiting for the same thing.
“Now you have more competition and potentially higher home prices. So maybe you save on the rate, but pay another $50,000 or $100,000 for the same house,” Panize tells Realtor.com “And if you buy at a higher rate today and rates eventually drop, you can always refinance. You can’t go back and refinance what you paid for the house.”
Potential buyers may be beginning to realize that waiting on one factor isn’t wise. Of homebuyers who have delayed purchasing due to mortgage rates, 41% regret not buying before rates or prices climbed further. A substantial 17% say they’d have bought sooner if they could redo the past year, according to Neighbors Bank.
The impact of waiting is also shown by the 67% of respondents who believe home prices in their area have increased since they started looking.
The lowest interest rates in the past five years occurred in January 2021, during the COVID-19 pandemic. The low was a shocking 2.65% for a 30-year fixed-rate mortgage, according to the Freddie Mac PMMS.
While these low rates are a recent memory, the 5% rate that many potential buyers are waiting for hasn’t been seen since 2022.
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