Should You Buy a House Now or Wait? Analyzing the Impact of Rates and Prices

The decision to buy a house now or wait hinges on a critical trade-off: locking in a home price today versus betting that a future price drop will be large enough to offset higher mortgage rates. For most buyers, especially in budgets under $500,000, rising interest rates are eroding purchasing power faster than prices are falling. Waiting for a significant market correction carries the risk of qualifying for a smaller loan later.

How Do Rising Mortgage Rates Affect Your Budget?

When mortgage rates increase, the amount of money you can borrow for the same monthly payment decreases—this is known as a loss of purchasing power. For example, a buyer with a $2,500 monthly housing budget and a 20% down payment could afford a $473,750 home at a 4% interest rate. When that rate climbs to 4.75%, the maximum affordable home price drops to approximately $444,000.

This means the same buyer effectively loses nearly $30,000 in purchasing power without any change in their income or savings. This squeeze is particularly acute for buyers in competitive markets where home prices have seen significant growth.

Will Home Prices Fall Enough to Offset Higher Rates?

While some markets are experiencing price adjustments, a decline large enough to neutralize rising rates is unlikely in the near term. Based on our experience assessment, the required price drop is substantial.

For a buyer with a $3,500 budget, a jump in rates from 5.0% to 5.5% can reduce the number of affordable 3-bedroom, 2-bathroom homes for sale by over 15% in markets like Orange County and Honolulu. Even if prices fall, they would need to drop significantly just to bring affordability back to its previous level.

What Are the Current Market Trends?

The housing market is undergoing a normalization. After a period of rapid price growth, the pace is slowing. More homes are staying on the market longer, and some sellers are reducing their list prices. This is partly due to seasonal trends, but also because buyers are reaching a limit on what they are willing to pay. Industry analysis suggests this period of adjustment may continue into the next peak buying season as the market finds a new equilibrium.

What Is the Practical Advice for Buyers?

The key is to focus on your personal financial situation and long-term plans rather than trying to time the market perfectly.

• Get Specific Numbers: The most crucial step is to speak with a mortgage advisor. They can provide a precise calculation of how much home you can afford at current rates. You can also use online affordability calculators to model different scenarios.
• Evaluate Your Timeline: If you plan to own the home for five to seven years or more, short-term market fluctuations have less impact. Buying a home you can afford and are happy to live in for the long term is often a sound strategy.
• Understand the Trade-Off: Waiting for lower prices is a gamble that rates will not rise further. If rates continue to climb, the savings from a slightly lower purchase price could be erased by the cost of a higher interest rate over the life of your loan.

Ultimately, the best time to buy is when you find a home that fits your needs and, most importantly, your budget. Conduct thorough research and base your decision on verified financial calculations rather than market predictions.