If Interest Rates are Expected to Go Down in 2025, Should I Wait to Buy?

Expert predictions show mortgage interest rates coming down significantly by the end of 2025. A common question we're seeing among buyers is whether they should buy now or wait for lower interest rates next year. If you're considering homes for sale in St. George and wondering if you should pause your house hunting, here's why you might not want to wait. 

Home Prices and Interest Rates: Their Relationship

There is an important relationship between interest rates and home prices that you need to factor into your decision about when to buy. Historically, when interest rates decrease, home prices tend to rise, potentially negating any financial advantage of a lower mortgage rate.

When mortgage rates drop, affordability increases for buyers, enabling them to purchase more expensive homes. This surge in demand often drives up home prices. On the other hand, higher interest rates tend to cool the market, slowing price increases and creating buyer opportunities in a less competitive environment.

For example, if interest rates decrease from 7% to 5%, the monthly payment on a mortgage becomes more affordable (maybe by hundreds of dollars). Buyers who were previously priced out can re-enter the market, and this leads to increased competition for homes. As demand outpaces supply, sellers are likely to raise prices, especially in desirable areas with limited inventory.

This relationship provides essential context for the rest of the factors you need to take into consideration as you decide when the right time to buy is for you. 

The Benefits of Buying Now

We can reasonably expect (though not guarantee) lower interest rates next year, but let's look at the benefits of buying now. 

Taking Advantage of Current Home Prices

Home prices tend to be more stable or even slightly negotiable when rates are higher, which is what we are seeing right now. Waiting for lower rates could push you into a more competitive market with higher prices. If prices increase significantly when rates drop, the savings you gain from a lower interest rate may be offset—or even exceeded—by the higher purchase price.

Letting Time Be On Your Side

When you buy now, your home will begin building equity so that when you refinance in a year or so, you will not only be able to have a lower interest rate but you can further benefit from the increased value of your home. You might decide to do a cash out refinance to leverage your equity toward another goal, or just reinvest the equity to lower your monthly payment. 

Avoiding the "Perfect Timing" Trap

There has long been a tendency among some buyers to wait for ideal timing, or to "time the market right." This is especially true in the years following the "unicorn conditions" we saw during 2020 and 2021 with jaw-droopingly low interest rates. It has skewed the perception of what a low interest rate is for many buyers. 

Waiting for the perfect combination of low prices and low rates can lead to missed opportunities. Market conditions are difficult to predict, and the ideal scenario may never materialize. Instead, focus on what you can afford today and plan for adjustments later. Ultimately, the best time to buy is when you can afford to. You can always refinance or sell in the future if market conditions change in your favor, but you'll be glad you invested before. 

The Bottom Line

If you can't afford to buy until interest rates come down, no problem. However, if you can afford it and are just wondering if it's a smarter financial move to wait, it probably isn't. Finding a home that you can afford at current interest rates and leveraging changes in the market in the future, through refinancing, is likely going to be the most financially advantageous plan. 

Erika Rogers says it this way: "While waiting for lower interest rates might seem like a good strategy, it often leads to higher home prices and increased competition, ultimately costing you more. By buying a home you can afford now, you can secure today’s prices, begin building equity, and later refinance to take advantage of lower rates."

Want to learn more about buying a home in St. George? We can help, so contact us any time.