The Truth About High Mortgage Rates and Home Prices: Why Waiting Could Cost You

Aspiring homeowners face a dilemma: Wait for mortgage rates to drop before purchasing a home or bite the bullet and buy now? While it seems like the smart move to wait for rates to drop, you likely won’t get the lower purchase price you’re looking for. In fact, waiting for rates to fall could end up costing you more in the long run.

The Mortgage Rate and Home Price Dynamic

As a prospective homebuyer, you may be hoping for mortgage rates to decline so your monthly payments become more affordable. The reality, though, is that when mortgage rates decrease, home prices often spike. 

Here’s why: Lower mortgage rates generally increase buyer affordability, leading to an influx of market demand. This surge in demand drives up home prices, resulting in a persistent cycle where low rates equate to higher prices.

For example, in 2020, when mortgage rates were at a historic low, the housing market went nuts, with home prices soaring to record levels. According to the National Association of Realtors, the median home price in the U.S. increased by 16.9% from 2020 to 2021.

The Cost of Waiting

Waiting for mortgage rates to dip might actually mean paying more for a home, as rising prices offset any savings garnered from a lower rate. And you could be missing out on accruing equity and other financial benefits associated with homeownership.

While you’re waiting, you’re likely paying rent, which doesn't contribute to your long-term wealth or asset-building. In contrast, homeownership provides equity that can grow over time, so more of your money stays with you. In fact, home ownership can help homeowners build a net worth that’s about 40 times higher than renters.

The Refinance Advantage

One option that can help you see a way out of the buy-now-or-buy-later conundrum is refinancing. If you buy a home at the current rate, you can still take advantage of any future rate reductions through refinancing. And by purchasing early, you lock in your home price—protecting yourself from the market heating up down the line. 

Once rates drop, refinancing allows you to take advantage of lower payments without having to pay a higher price for the home. This helps you optimize your mortgage payments, take money out if needed and potentially save thousands over the life of your loan.

The Sooner You Buy, the Better

It’s important to understand the relationship between mortgage rates and home prices so you can make the most informed decisions about when to buy. Choosing to buy now instead of waiting for that elusive “perfect” rate can be better in the long run because it gives you a foothold in an unpredictable housing market.

When it comes to navigating these complex decisions, having a knowledgeable partner can make all the difference. As a seasoned real estate agent in Los Angeles, I can offer expert advice and personalized solutions tailored to your unique needs. Whether you're buying or selling, I’ll guide you through the process so you get the best deal for you. Reach out and take the first step toward making your real estate dreams a reality.

Erik Jimenez

Real Estate Agent

DRE #02182362

Compass