Mortgage rates are plummeting. Should homebuyers jump into the market?

(NEW YORK) — Mortgage rates have plummeted in recent weeks, boosting the prospects of homebuyers previously stifled by high borrowing costs.

Many forecasters predict mortgage rates will drop further, however, since the Federal Reserve expects to cut its benchmark interest rate this year.

Those circumstances pose a quandary for buyers: Jump into a newly attractive market that promises thousands of dollars in gains or wait for the possibility of an even more favorable one.

Homebuyers would be well-served by a leap into the current market, since the movement of mortgage rates often proves difficult to predict and purchasers reserve the ability to refinance if rates continue to fall, experts told ABC News.

But that approach does carry risks, some experts added, noting the loss of additional time to pad one’s finances as well as the possibility of a decline in home value after the purchase if the market worsens.

“If you need to buy a property, go ahead and buy it,” Marti Subrahmanyam, a professor of finance and business at New York University, told ABC News. “Don’t try to time the market.”

Last year, mortgage rates reached their highest level in more than two decades.

But rates have declined sharply over the past few months. As of last week, the average interest rate for a 30-year fixed mortgage stood at roughly 6.6%, according to FreddieMac. That amounts to more than a percentage point drop from a peak reached in October.

Each percentage point decrease in a mortgage rate can take away thousands or tens of thousands of dollars in costs each year, depending on the price of the house.

The fall of mortgage rates coincided with an announcement from the Fed that it expects to cut interest rates this year by an amount equivalent to three quarter-point reductions.

Such plans would reverse a near-historic series of rate increases over the past year that sent mortgage rates soaring.

Mortgage rates closely track with 10-year treasury bond yields, which last month reached lows last seen in August. Those yields are highly sensitive to the Fed’s interest rate moves.

“Treasury rates are coming down — and as treasury rates come down, so will mortgage rates,” Susan Wachter, a professor of real estate at University of Pennsylvania’s Wharton School of Business, told ABC News.

Even though mortgage rates could continue to fall, experts said, it makes sense to jump into the market because shifts in rates often defy expectations.

“I would be wary of advising prospective homebuyers to delay their purchase in hopes of better terms in the future,” Julia Fonseca, a professor at the Gies College of Business at the University of Illinois at Urbana-Champaign. “It’s very hard to time the market.”

Lu Liu, a professor at the Wharton School at the University of Pennsylvania, echoed this view.

“Households should make their housing decisions in line with their needs,” Liu told ABC News. “It’s very hard to accurately predict long-term interest rates.”

Plus, experts added, homebuyers can opt to refinance their homes at relatively low cost if rates move further downward.

“It’s quite efficient to refinance,” Wachter said.

This approach does carry some downsides, however, some experts noted.

If homebuyers move quickly, they cut down the time available to add to their savings before taking on the significant expense of a mortgage.

Purchasers also run the risk of snatching up a house right before the market declines, in which case the home could lose value almost immediately.

“The risks are that housing prices may plummet,” Wachter said, noting that such an outcome would likely require a severe recession that triggers layoffs and tanks demand for homes.

Optimism has grown about the outlook for the U.S. economy, however. Experts widely expect the economy to slow but not shrink over the next year.

“That risk of significant declines in housing prices I believe is off the table,” Wachter said.

Ultimately, the decision to buy a house requires a case-by-case assessment of factors that extend well beyond borrowing costs, some experts said.

“Whether now is a good time to jump back in depends on your personal situation,” Liu said.

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