Mortgage Rates Are High. Does It Still Make Sense to Buy a Home?

Higher mortgage rates have slowed the housing market—but they're also creating opportunities for buyers to negotiate seller concessions, rate buydowns, repairs and closing costs. And down-payment assistance may make buying more attainable than you think.

Let's address the elephant in the room: mortgage rates are high.

As of October 2, Mortgage News Daily's top-tier 30-year fixed mortgage rate reached 7.57%—levels we have not seen since November 2023.

I'm not going to tell you that doesn't matter. It does. A higher interest rate has a real impact on your monthly payment and how much home you can comfortably afford.

But if you were sitting across the table from me asking, "Patrick, should I even consider buying a home right now?" I also wouldn't tell you to put your plans on hold based on the interest rate alone.

You want to look at the whole picture.

What can you comfortably afford each month? How much cash do you actually need to buy? Do you qualify for down-payment assistance? Can we negotiate a seller credit or a temporary interest-rate buydown? Is there room to negotiate the price or repairs? And most importantly, how long do you plan to own the home?

Today’s higher rates are creating something buyers haven't had much of in recent years: negotiating power.

High rates have slowed buyers down—and that's creating opportunity

Buyer demand is low right now, and affordability is a major reason why.

Here in San Diego, homes are taking longer to sell. Homes and condos priced below $750,000 are taking an average of 126 days to go under contract, compared with 99 days at this time last year. From $750,000 to $1 million, it's 94 days compared with 79 days last year.

That doesn't mean homes aren't selling. Just in August, 52% of San Diego homes still sold at or above their last asking price. In July, the median sales price of a single-family home hit an all-time new record high of $1.143M. As we progress into the fall and winter, due to the seasonality of real estate, prices will gradually drop (creating a great fall / winter buying opportunity) before picking up again during the spring market.  We see these seasonality ebbs and flow of real estate values nearly every fall and spring.

Residential real estate is a nuanced market with multiple moving parts and economic factors driving values and opportunities—and that's where having a strategy matters.

I'm seeing some of the greatest opportunities with condos. In some areas, a significant percentage of condo listings simply aren't selling and are eventually being pulled from the market. When a seller has been sitting on the market without an offer, that's when we may have an opportunity to negotiate. And sellers are negotiating. According to Redfin, over half of San Diego home sales included a seller concession.

A seller concession could mean money toward your closing costs. It could help pay for a temporary interest rate buydown, such as a 2-1 buydown. We may negotiate repairs or credits after the home inspection. Depending on the property, we may also have room to negotiate the purchase price.

Those things can add up.

What exactly is a 2-1 buydown?

One strategy we are using for our buyers right now is asking the seller to help fund a 2-1 interest-rate buydown.

If you've never heard of one, here's how it works: the seller contributes money at closing that is used to temporarily reduce your effective mortgage rate for the first two years.

Your rate is effectively reduced by two percentage points during year one and one percentage point during year two. In year three, your payment is based on the full interest rate you locked when you purchased the home. Unlike an adjustable-rate mortgage, you know exactly what your mortgage rate will be each year, including year three and beyond.

I understand this strategy personally because I've used it myself.

But this part is important: before I purchased, I made sure I would be comfortable with the payment at the full rate when I reached year three.

Financing has always been part of my real estate strategy. In today's higher-rate environment, I think it's even more important to understand all the tools available to you rather than simply looking at the advertised mortgage rate and deciding you can't buy.

You probably don't need a 20% down payment

This may be the biggest misconception I hear from first-time homebuyers. You absolutely do not need a 20% down payment to buy a home.

I can't tell you how many people I talk to who assume they need to save $100,000 or $150,000 before they can even think about buying in San Diego.

For many buyers, that simply isn't true.

Many of my buyers use loans requiring only 3.5% to 5% down. Military members and veterans that I work with typically utilize their VA loan, which does not require any down payment. And I can speak from personal experience here, too.

When I was in my 20’s, I purchased my first property, a condo in Bonita, utilizing a government grant downpayment assistance program that allowed me to put 0% down. I bought my second property, a condo in Little Italy, with 5% down. And I purchased my third property in Point Loma with 0% down utilizing my VA home loan.  It seems too good to be true – but in my 20’s I was able to purchase three San Diego properties while only having to provide a down payment on one of them – and it was just a 5% down payment.  Those first three properties, purchased with little to no money down, set me up early in life on a “real estate path” that changed my life and ultimately led me into real estate brokerage to help others do the same.

There can absolutely be advantages to making a larger down payment, and the right amount depends on your finances, loan program, monthly-payment goals and the property you're buying.

But you do not want to spend years on the sidelines, tossing money away to rent while watching home prices rise, trying to reach an arbitrary 20% number because that is simply not a requirement.

And this is where down-payment assistance can completely change the conversation.

Down-payment assistance isn't just for low-income buyers

Depending on the state, county or city program and your eligibility, down-payment assistance programs may provide assistance ranging from approximately 3% all the way up to 20% of the purchase price. Just a month ago we helped a first-time homebuyer secure $150,000 in down payment assistance (tax free) from the state of California. We typically can secure between $20,000 to $150,000 for most first-time home buyers. Some programs can also help with closing costs.

Our brokerage team has helped our buyers secure over one million dollars in down-payment assistance over the past four years, and many of our first-time buyers have ultimately purchased their homes with less than $10,000 of their own money.

Another misconception? That you must have a low income to qualify for down payment assistance.

In San Diego County, California's current CalHFA income limit for many of its first-time homebuyer mortgage and assistance programs is $259,000. That means even a household earning nearly $260,000 a year may potentially qualify for state down-payment assistance, depending on the program and the buyer's qualifications.

And remember what's happening in today's market: sellers are negotiating, too.

So depending on the buyer, property, and loan program, we may be able to use down-payment assistance for some or all of the down payment and closing costs while also negotiating a contribution from the seller toward allowable closing costs or an interest-rate buydown.

That's why you should not decide on your own:

"I don't have enough saved."

"I make too much money for assistance."

"I need 20% down."

"I'll start looking in a few years when I've saved more."

Find out first what programs, loans, and assistance you may qualify for. You will be surprised.

You may still decide waiting is the right financial decision for you. But don't spend years waiting to reach a savings number you may never have needed in the first place.

Is the housing market about to crash?

This is another question I hear, especially when buyers see homes sitting on the market longer.

The current data doesn't point to the conditions normally associated with a housing crash.

Housing analyst Steven Thomas of Reports on Housing recently put it simply: "No imminent housing crash is lurking around the corner."

For a significant housing downturn, we'd generally expect to see a combination of very weak demand, an oversupply of homes and significant seller distress.

Right now, we certainly have weak demand. But inventory and distressed selling don't resemble the conditions associated with the last housing crash.

And this isn't just a San Diego story.

Across the country, existing-home sales declined 2% in August, while the number of homes available for sale increased from a year earlier. Yet the national median existing-home price was still 1.6% higher than a year ago, marking the 38th consecutive month of year-over-year price increases.

Another national measure from the Federal Housing Finance Agency showed U.S. home prices 2.6% higher in July than one year earlier.

Here in San Diego, the latest S&P Cotality Case-Shiller Index showed prices 1.63% higher year over year in July, the fastest annual increase in nearly a year and a half.

So no, homes aren't suddenly "cheap." And I don't think that's the opportunity buyers should be looking for.

The opportunity right now is leverage and negotiation power that often increases for buyers during the fall and winter real estate markets.

Should you wait for mortgage rates to come down?

Nobody can tell you with certainty where mortgage rates will be six months or a year from now. I certainly won't pretend that I can.

But there is another side of the equation that buyers sometimes overlook.

If rates eventually become more attractive, some of the buyers currently sitting on the sidelines will come back into the market.

More buyers can mean more competition for the same homes—and potentially fewer sellers willing to pay closing costs, fund a rate buydown, make repairs or negotiate on price.

So a lower interest rate doesn't automatically mean you'll encounter a better overall buying opportunity. As rates go down, we often see home prices go up, offsetting much of the advantages of rates going down.  And while you can always change and refinance your mortgage interest rate to a lower rate in the future – you can never change the price you purchased your home for.

Personally, I've always liked buying real estate in the fall and around the holidays. There tend to be fewer buyers looking, and less competition can create opportunities to negotiate that may not exist during a busy spring market.

Would I buy a home today that I knew I needed to sell again in a year or two? Probably not.

Do I think now is a good time to buy? – The best way I can answer that is by speaking through my actions. I personally purchased two San Diego investment properties in the last 9 months, and I would not be buying more San Diego real estate unless I believed it to be a good financial long-term investment.

If you asked for my perspective as someone who has bought real estate myself and helped hundreds of buyers navigate this decision, I'd tell you that I look at real estate and homeownership on a 5-10 year horizon, not based on what I think will happen to prices or mortgage rates next year.

I genuinely believe that many people who buy a home they can comfortably afford today and hold it for the next five to ten years will ultimately be happy they did.

That doesn't mean the first year or two will necessarily be exciting from an investment standpoint.

Rates may remain elevated. We may not see the enormous price gains homeowners experienced during the pandemic years. Home values can fluctuate, and there are never guarantees about future appreciation.

But a home is also different from many other investments because you need somewhere to live.

You're purchasing housing for yourself while also building ownership over time.

For me, that's why the decision isn't simply, "Will this house be worth more next year?"

It's: "Does this home fit my life and my budget, and am I comfortable owning it for the long term?"

If the answer is yes, that's when I think it's worth seriously exploring the opportunity in front of you. Don't rule yourself out before you know your options

My job isn't to convince clients to buy a house. My job is to educate.

My job is to help people understand their options, look at the numbers and advise when I see an opportunity that makes sense.

Sometimes I'll tell a buyer they're ready. Sometimes I'll tell them there are a few things we should work on first.

But what I don't want you to do is assume you can't buy because mortgage rates are high, you don't have 20% to put down, you think you make too much money for down payment assistance, or you've read enough scary housing headlines to convince yourself you should wait.

You owe it to yourself to actually find out the facts.

You may explore down-payment assistance programs, talk with a trusted lender about financing options and then see what opportunities exist in the market.

Ultimately, you may decide now isn't your time.

Or you may discover that buying a home is much closer than you thought.

Sources: Mortgage News Daily; Redfin; Reports on Housing; California Housing Finance Agency (CalHFA); National Association of Realtors; Federal Housing Finance Agency; S&P Cotality Case-Shiller Home Price Index.