Why Buying a House in 2024 Makes Sense, Even When Rates Are High

For many of us, a home is the biggest purchase we will make in our entire lives. Even at the best of times, it can feel as if you're taking a big leap into the unknown. Right now, that's compounded by high mortgage rates, house prices that haven't dropped from their pandemic surge, fears of a housing crash, and economic uncertainty. Put simply, it's scary.

If you think too hard, your property buying dreams can quickly morph into something more akin to A Nightmare on Elm Street. The average monthly mortgage payment reached a high of $2,739 in October, according to Redfin data. At the time, the property specialists pointed out, "The typical buyer needs to earn 15% more than they did a year ago -- and wages are only up 5%."

Buying a home is certainly more challenging than it was a few years ago. But that doesn't make it a bad idea in every scenario. Here are three reasons why buying a house could make sense in 2024.

1. A home can be more than an investment

Money is important, and if you aren't confident you can make your monthly mortgage payments, now's not the time to buy property. But if you've got cash saved for a down payment and you have the rest of your financial ducks in a row, don't dismiss the emotional value of owning your own home. Particularly if you plan to stay for five years or more.

A friend of mine told me recently that she plans to buy next year, no matter what happens to the market. She's tired of renting and wants to put down roots -- even if it means braving the affordability crisis. She and her partner have been saving for years and they want to get a foot on the property ladder. I can relate. I rented for over 20 years and it can get tiring to pack up every couple years. There's also something special about remodeling your space the way you want it.

We are all different. Your new home hopes may revolve around kids, pets, your career, or a desire to be in one place. But it's good to recognize it is more than a financial investment. Ultimately, if you've always dreamed of having your very own Santa grotto in the basement, owning means you won't have to sell your landlord on the benefits of elves and reindeer.

2. We don't know what will happen

It is almost impossible to predict what will happen to the housing market in the coming years. If you're trying to time the market and buy at exactly the right moment, you could wind up waiting on the sidelines and never jumping in. That would mean you lose time when you could be building equity in your own place.

Even so, it's difficult to see beyond the current mortgage rates. Particularly as many experts think they'll drop in 2024. The Mortgage Bankers Association predicts rates could fall to 6.1% by the end of next year. Redfin estimates rates could fall from 7.3% in the fourth quarter of 2023 to 6.6% the following year.

Let's say you're buying a $400,000 home with a 20% down payment. Our mortgage calculator shows how a fall from 7.3% to 6.1% might impact your monthly costs and total interest payments for a 30-year fixed-rate mortgage. Waiting until rates fall to 6.1% could save you almost $100,000 over the course of the loan.

Unfortunately, many expert predictions for 2023 did not pan out. And changes in one aspect of home buying can impact others. What if rates don't fall? They might still go up. Or the fall in rates could trigger a flood of buyers. In that scenario, rates could drop slightly only to have the savings wiped out by increased property costs. With so many moving parts, sometimes there is a benefit to taking the leap.

3. You could refinance if rates fall

Refinancing is not a magic bullet that solves all home-buying quandaries. Nonetheless, it can be reassuring to know that you don't have to stick with an interest rate of over 7% for the next 30 years.

As we saw from the predictions above, rates could fall in 2024. The Federal Reserve may lower interest rates if the economy slows and inflation comes back under control. If it does, you may be able to refinance to a lower interest rate. If you have a fixed-rate mortgage and rates rise, which is also not an impossible proposition, your rate will be locked in.

There are some important caveats here. Firstly, it is extremely unlikely that we will go back to the pandemic-era rates of under 3%. Looking back at historical mortgage rates, those were actually more of an anomaly than the rates we see now. Second, if housing prices drop considerably, refinancing could be a challenge if you wind up owing more than your home is worth.

Thirdly, when you refinance a mortgage, you will have to pay closing costs of between 2% to 6% of the loan. That's not insignificant. It means the cost of refinancing a $320,000 loan could be between $6,400 and $19,200. Even so, if it lowers your monthly payments or significantly cuts the amount of interest you will pay in total, it could be worth it.

Key takeaway

Buying a home is a big decision and the current high costs put it out of reach for many of us. However, if you're ready to buy, know that there will never be a perfect time. If you have enough saved for a down payment, your emergency fund is well-stocked, and you're confident you can maintain your income, don't put too much weight on the doom-mongering headlines. Economic predictions matter, but your personal situation is more important.