Now that the Fed has cut interest rates, is it time to buy or sell a home?

The Federal Reserve finally cut interest rates in September, a long-awaited change that could lower mortgage rates. For prospective homebuyers who are waiting, the Fed's policy shift is a new factor to consider. Should you buy – or sell – now, or wait to see whether future rate cuts will cause mortgage rates to fall further?

The decision is not easy. Mortgage rates and home prices are difficult to predict. However, real estate experts say mortgage rates are unlikely to return to pandemic levels and home prices are expected to continue rising.

The average sales price of an existing home in the United States reached an all-time high of $426,900 in June 2024. While sales prices have fallen somewhat since then, home prices reached monthly all-time highs in July, August and September, according to the National Association of Realtors (NAR). According to September 2024 data from the Fannie Mae Home Purchase Sentiment Index, a whopping 81 percent of consumers believe it is a bad time to buy a home.

Nevertheless, conditions for buyers have improved in some respects. Mortgage rates were above 8 percent in October 2023, according to Bankrate's nationwide lender survey. They have since declined – the average interest rate was 6.88 percent as of October 30. In another shift, housing inventory continues to rise, reaching 4.3 months of inventory at the end of September, according to NAR.

Mortgage rates have fallen from last fall's highs but are still well above 6 percent. And home prices remain sky-high, with September NAR data showing 15 consecutive months of year-over-year increases.

“Prices are not going anywhere,” says Kurt Carlton, co-founder and president of New Western, a real estate investment marketplace.

Carlton cites the imbalance between housing supply and demand as one reason. During the Great Recession, builders scaled back construction and housing starts remained subdued. Meanwhile, population growth and a strong economy mean more Americans want home ownership.

The real estate market is stuck for now. National home sales fell to 3.84 million in September, the lowest since 2010, according to NAR.

“When people aren't sure what to do, they don't do anything,” says Katie Severance, an agent with Douglas Elliman in Palm Beach, Florida.

But waiting to buy a home may not be the best decision; It's entirely possible that house prices will continue to rise and the property market will become even more difficult for buyers in six months or a year.

Consider the real estate climate in 2022: Home prices had skyrocketed and mortgage rates were on the verge of rising from their record lows. The conventional wisdom among real estate experts was that property prices could fall slightly and buyers would be better off waiting. Instead, prices continued to rise even as mortgage rates doubled.

Today, potential buyers face a conundrum: Is it better to wait for a drop in mortgage rates, knowing that a drop in rates could attract buyers, thereby increasing demand for a limited supply of homes?

“When interest rates fall, the market can recover quickly,” says Severance.

Melissa Cohn, regional vice president of William Raveis Mortgage, advises those hesitant to buy now and then refinance when mortgage rates fall. She calls the strategy “marry the house and agree on the price.”

If it's a bad time to buy, it stands to reason that it's a good time to sell. According to Fannie Mae's Home Purchase Sentiment Index, 65 percent of respondents believe now is a good time to sell. If you are a seller looking to purchase another property, you will of course need to carefully consider how much you are willing to pay, given the sharp increases in values in many parts of the country in recent years.

Severance says local market dynamics also play a role in determining whether it's a good or bad time to sell. “In some areas, selling now is the right thing to do because prices are still rising,” Severance says. “In other markets, it may be best to wait to sell until interest rates fall and then stay low, which will boost sales again.”

Learn more: Should I sell my house now or wait?

Buying a home is such a personal decision that it's hard to say whether any particular time is a good or bad time to buy. Say you live in a small apartment and are expecting twins – it's probably time to buy, no matter what happens in the wider market. However, there are a few ways to make sure you're prepared:

Work on your credit score. Your credit score is a crucial factor in determining what type of mortgage and interest rate you can get. The best mortgage deals go to borrowers with a credit score above 740. However, it is possible to get a mortgage with a credit score of 620 or even lower, although you will likely have a loan through the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA) loan programs instead of lenders that offer conventional loans.
Increase the deposit. In addition to paying your bills on time, you should work on saving a significant amount for a down payment. The more you can pay up front, the less you will have to borrow. Lenders look for additional cash reserves to cover incurring repair and maintenance costs. You don't have to put down 20 percent, but you should expect to pay back at least 3 to 5 percent (unless you get a VA or USDA loan).
Commit to staying home for a while. In addition to the purchase price, there are closing costs when buying a house, which can amount to several thousand euros. So, to justify these one-time transaction costs, make sure you're not moving again anytime soon – or that you're financially stable enough to keep the property and rent it out. Additionally, selling a property shortly after purchase can have tax implications.

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