Why it makes sense to buy a home in 2024, even when interest rates are high

For many of us, a home is the biggest purchase of our lives. Even at the best of times, it can feel like you’re taking a big leap into the unknown. For now, the situation is made worse by high mortgage rates, home prices that haven’t fallen despite the pandemic surge, fears of a housing crash, and economic uncertainty. To put it simply, it’s scary.

If you think too hard, your dream of buying real estate can quickly turn into something similar to this: A Nightmare on Elm Street. The average monthly mortgage payment reached a peak of $2,739 in October, according to Redfin data. At the time, real estate experts pointed out, “The average buyer had to earn 15% more than a year ago, but wages only increased by 5%.”

Buying a home is definitely more difficult than it was a few years ago. However, this does not mean that it is a bad idea in all scenarios. Here are three reasons why buying a home in 2024 could make sense.

1. A home can be more than an investment.

Money is important. If you are not confident you can make your monthly mortgage payments, now is not the time to buy property. But if you’re saving cash for a down payment and the rest of your financial problems are cascading, don’t ignore the emotional value of owning a home. This is especially true if you plan to stay for more than 5 years.

A friend of mine recently told me that he plans to buy next year, no matter what happens in the market. She is tired of her rental and wants to put down her roots. Even if it means confronting an affordability crisis. She and her partner have been saving for years and want to get a foot on the property ladder. I can sympathize. I’ve rented for over 20 years and packing up every few years can be tiring. There is something special about remodeling a space to your liking.

We are all different. Your new home wishes may revolve around children, pets, a job, or a desire to stay in one place. But it’s good to recognize that it’s more than a financial investment. Ultimately, if you’ve always dreamed of having your own Santa grotto in your basement, owning one means you won’t have to sell your home for the benefit of elves and reindeer.

2. We don’t know what will happen

It’s nearly impossible to predict what will happen to the housing market over the next few years. If you’re trying to time the market and buy at the exact moment, you might end up sitting on the sidelines and waiting and not jumping in at all. This means you’re wasting time that could be building assets in your own place.

Still, it’s hard to look beyond current mortgage rates. In particular, many experts believe that interest rates will fall in 2024. The Mortgage Bankers Association predicts rates could fall as low as 6.1% by the end of next year. Redfin estimates that interest rates could fall from 7.3% in the fourth quarter of 2023 to 6.6% next year.

Let’s say you’re buying a $400,000 home with a 20% down payment. Our mortgage calculator shows how a drop from 7.3% to 6.1% could affect your monthly costs and total interest payments on a 30-year fixed-rate mortgage. If you wait until interest rates drop to 6.1%, you could save nearly $100,000 over the life of your loan.

Data source: Author calculations.

Unfortunately, many expert predictions for 2023 did not come true. And changes in one aspect of home buying can affect other aspects as well. What if interest rates don’t fall? They may still rise. Or, falling interest rates could lead to a flood of buyers. In this scenario, rates may drop only slightly enough to wipe out any savings due to increased real estate costs. With so many moving parts, sometimes it pays to take a leap.

3. If interest rates fall, you can refinance.

Refinancing is not a magic bullet that solves all your home buying problems. Still, you can take comfort in knowing that you won’t have to stick with an interest rate higher than 7% for the next 30 years.

As we saw in the forecast above, interest rates could fall by 2024. The Fed may lower interest rates as the economy slows and inflation comes back under control. If so, you may be able to refinance at a lower interest rate. If you have a fixed-rate mortgage and interest rates rise (again, not an impossible proposition), your interest rate will be locked in.

There are some important caveats here. First, it is extremely unlikely that we will return to the pandemic era with less than 3%. If you look back at historical mortgage rates, they were actually more unusual than the rates we see today. Second, if home prices fall significantly, refinancing may be difficult if you end up owing more than your home is worth.

Third, when you refinance your mortgage, you’ll have to pay closing costs that can range from 2% to 6% of the loan amount. That’s not important. This means that refinancing a $320,000 loan could cost between $6,400 and $19,200. Still, it may be worth it if it lowers your monthly payment or significantly reduces the total amount of interest you’ll pay.

main points

Buying a home is a big decision, and today’s high costs make it difficult for many people to do so. But if you’re ready to buy, know that there’s never a perfect time. If you have enough money saved for a down payment, have a well-stocked emergency fund, and are confident you can maintain your income, don’t give too much weight to headlines that promote doom. Economic forecasts are important, but personal circumstances are even more important.