Home buyers entering the market in recent years have faced elevated mortgage rates and house prices, making it difficult for first-time buyers to navigate.
When the Fed began cutting interest rates in September, Americans hoped continued rate reductions would lead to lower mortgage rates down the line. And while mortgage rates have dropped from their recent peak in November 2023, they began to creep back up during the last few months of 2024.
Mortgage rates are expected to move closer to 6% by the end of 2025; it may take several years for them to reach 5% or lower.
The sluggish mortgage rate forecasts have forced buyers to reconsider whether or not to wait out high mortgage rates.
First-time buyers are entering the market at increasingly older ages, and many don’t want to wait even longer to take the plunge and buy a home.
Financial guru Dave Ramsey shares his thoughts on why higher mortgage rates shouldn’t scare buyers off and why they should consider the big picture when buying a home.
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Mortgage rates are only part of the home-buying equation
Though mortgage rates are the first factor most people consider when planning to buy a home, it is only part of the housing affordability equation. Housing prices, location, and inventory supply also affect the decision.
Ramsey highlights why buyers waiting for mortgage rates to drop should instead act now — if they’re ready financially.
“Think of it this way: You date the interest rate but marry the house,” he wrote.
“House prices will start going up as interest rates continue to drop. Lots of folks haven’t been able to afford a house because of high interest rates, so they’ve been sitting and waiting.”
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Home prices tend to increase over time, but this trend is especially pronounced when there is strong market demand, and sellers can price their homes accordingly. Buyers waiting for mortgage rates to come down will likely face a more expensive and competitive market.
“As rates keep getting lower, more and more of those people will start buying homes—and sellers will be able to raise their prices because of that increase in demand. If you wait to buy and home prices increase, you’re stuck with the higher prices.”
Buyers prepared to take the plunge and who have found their dream house will always have the option to refinance their mortgage once rates come down more noticeably in a few years.
Mortgage refinancing can give you the best of both worlds
Refinancing a mortgage involves replacing your old mortgage with a new loan, typically with one that offers more competitive rates and more favorable terms.
Consumers usually choose to refinance when interest rates drop: the Fed noted a refinancing “boom” between 2020 and 2021 when mortgage rates hit historically low levels.
Related: Dave Ramsey has blunt words on mortgage rates and buying a home now
Though mortgage delinquencies have generally decreased since the 2008 Financial Crisis, mortgage debt still accounts for nearly 75% of all household debt. Mortgage balances also increased by $75 billion in Q3 2024, indicating that homeowners' housing costs are on the rise.
Refinancing allows consumers to reduce their monthly payments when mortgage rates eventually drop; it just may require some patience.
While it is essential to commit to a house within budget and mortgage payments that don’t exceed 25% of your income, refinancing can give buyers wiggle room to find the right time to purchase a home.
Ramsey notes, “You never want to decide whether to buy a house purely based on what the market is doing. You get to decide when to buy a house based on what’s right for you and your family—not the Fed.”
Related: Veteran fund manager issues dire S&P 500 warning for 2025
