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By Laura Johnson
contributing writer 

When will interest rates drop...and is it worth the wait?

 

March 16, 2024



This is the question most asked when meeting with a potential borrower these days. The steady climb of mortgage rates over the last 3 years has made some borrowers hesitate to purchase, thinking rates will come back down into the 3% range or housing prices will crash. Many economists will agree that to see rates in the 3% range again, it would take a major economic event that we may not wish upon ourselves as rates tend to come down when there's negative economic news. While not a 100% correlation, bad news typically equals better rates. Why? The high-level answer is that the "bad news" may slow down the economy so the offset or counter measure would be to lower the cost of borrowing money which can stimulate the economy.

Historically, the rates we see now are well within historic "averages" that aren't the 3s but also aren't the 12-15% rates experienced by a few generations of buyers. Specifically, in 2021 the mortgage interest rate averaged 3.40% compared to today's average rate of 6.87%. To see what some leading economic organizations are predicting, below are the 2024/2025 forecast for mortgage rates:

At the same time you might be contemplating the timing of the rates to drop, you must also consider the cost of waiting. While waiting for rates to come down, home prices have risen due to the shortage of homes in many areas. There is a breakeven and actual "loss" that may occur when rates come down but prices go up. For example, using Tehachapi's average loan size, for every 1/8% reduction in rate, that savings is neutralized by a $4,000 increase in the sales price. So, if prices increased by $10,000 over a year, it would take over .25% of a drop in rates to simply have the same payment you would have had originally at the higher rate and lower sales price. The moral of the story: the right time to buy is when you find the right home for your needs. Rates will change. Refinances will take place. Best strategy is to get your foot in the door...your own door and let the interest rates do their thing!

Laura Johnson has lived in Tehachapi for 49 years and her family's history in Tehachapi spans over 150 years. Laura has been in lending for 14 years and the real estate industry for 24 years. You can reach Laura at Nations Lending 1054-B Valley Blvd. Tehachapi, (661) 303-7853.

 
 

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