Mortgage rates are low. Should you buy now?
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Mortgage rates have fallen to their lowest level since January 2018. So where are all the homebuyers?
The average interest rate for a 30-year fixed-rate mortgage fell to 4.14% in April, according to Freddie Mac, a government-run company that buys residential mortgages. But existing home sales are down 4.4% from a year ago, data from the National Association of Realtors shows.
Low mortgage rates would normally attract prospective homebuyers seeking more affordable monthly payments, but mortgages haven't been the sticking point in the housing market, said Sarah Mikhitarian, a senior economist for real estate company Zillow.
"The real struggle here is affording the down payment," Mikhitarian said.
The median price for an existing home in April was $267,300, according to the National Association of Realtors. That's up 3.6% from last year, marking 86 straight months of year-over-year price increases.
In some markets, prices have at least started to slow, Mikhitarian said.
"Affording the down payment is so difficult for so many people that the market is adjusting for people," Mikhitarian said.
Prices have slowed or even fallen in markets like San Jose, San Francisco, Seattle and Los Angeles, Mikhitarian said. Granted, prices in those areas are among the highest in the country, but slowdowns there may mean an easier market for buyers elsewhere.
On the other hand, a new wave of millennials in their late 20s and early 30s is about to enter the housing market and could raise demand and prices, Mikhitarian said.
" might slow down and pick back up as this new wave of demand from millennials takes hold," Mikhitarian said.
If a down payment is your biggest obstacle, know that you don't necessarily need to put down 20% of the home's price. But there's a downside: If you put down less than 20%, you'll have to pay private mortgage insurance, which will add to your monthly costs and may cancel out the savings from low mortgage rates.
Depending on your circumstances, the tradeoff may be worthwhile. Talking to a financial adviser is a good idea before diving into a big purchase like buying a house. And you can use our mortgage calculator determine your monthly payments.
Bottom line: Despite low mortgage rates, it remains a seller's market. To beat the competition, buyers may have to take on extra risk by waiving financial contingencies or by choosing to live in less trendy neighborhoods.
Read more about buying a house in a hot market.
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