When Rates Drop, Will Home Prices Also Drop?

By Jason Penrose

Jason has been licensed since 1999, and is currently one of the top 20 agents in Arizona for homes sold.

Should you wait for rates to drop before buying or selling a home? Many potential buyers and sellers are on the fence, anticipating that lower rates might create a more favorable market. However, the situation is more complicated than it appears at first glance.

When interest rates decrease, the typical expectation is that more buyers will enter the market, driving up home prices. This was observed the last time rates fell, as increased buyer demand pushed prices higher. But it’s important to consider the broader economic context and the Federal Reserve’s strategy.

The Federal Reserve has indicated that it will not cut rates until inflation shows a consistent decline and unemployment rates increase. This cautious approach suggests that a rate cut might not happen until the economy slows down significantly, potentially leading to a recession. Historically, every instance of rate cuts by the Fed has been followed by a recession, and this time might not be different.

If a recession triggers lower interest rates, the market could shift in unexpected ways. Lower rates might be beneficial for those with stable jobs, enabling them to secure mortgages at attractive rates. However, rising unemployment and economic uncertainty could dampen overall buyer demand, similar to what occurred in 2008. Despite falling rates, fewer people might be financially secure enough to purchase homes, leading to a potential decline in home prices.

So, what’s the advice for buyers and sellers? Given the uncertainty of future market conditions, waiting for lower rates could be a gamble. If you are financially ready to buy or sell now, it may be wise to proceed rather than trying to time the market. Current rates offer a level of predictability, and if rates do decrease in the future, refinancing remains an option. If rates rise, locking in today’s rates could protect you from higher costs and potential market entry barriers.

The real estate market is influenced by various factors, and predicting future conditions is challenging. Rather than waiting for an ideal scenario, consider your current financial situation and make a decision that aligns with your present capabilities. If you’re thinking about buying or selling, I’d be happy to discuss your unique circumstances to help you determine the best course of action. Feel free to call or text me at 602-738-9943.