As of March 2025, inflation and economic uncertainty continue to shape the landscape of the United States’ real estate market. In response to inflation, the Federal Reserve has increased mortgage rates significantly.
While 30-year fixed mortgage rates have dwindled to an average rate of 6.62% from a 23-year peak of 7.79% in 2023, this slightly decreased rate is still considered relatively high. The lack of significant movement in mortgage rates raises concerns amongst real estate investors looking to expand their investment portfolios. So, today we’re here to discuss one of the most common questions in the real estate community right now, “Should I wait for mortgage rates to drop before purchasing an investment property”?
Understanding Mortgage Rates and Their Impact
We’ve all heard the term mortgage, but what exactly is a mortgage and what influences mortgage rates in the United States?
A mortgage is a type of loan used to purchase real estate. When you take out a mortgage, a lender provides you with the amount of money you need to purchase the property. In return, your mortgage accrues interest, typically at a fixed rate. This interest amount is called the mortgage rate, and is to be paid back over a pre-determined amount of time — typically 30, 20, or 15 years. Your property then serves as collateral, meaning if your mortgage is not paid back in full over the 30, 20, or 15 years, the lender has the right to take possession of your property through foreclosure.
Mortgage rates are impacted by a number of factors including inflation, Federal Reserve actions, economic conditions, supply and demand, and government regulations. In addition, individual mortgage rates will vary depending on the borrower’s credit worthiness. Because of high inflation, economic uncertainty, and changing government regulations, mortgage rates are significantly higher in this period of time.
Will Mortgage Rates Drop in 2025-2026?
According to strategists at Morgan Stanley, mortgage rates could potentially drop alongside Treasury yields in 2025. Treasury yields, or the interest rate that investors earn when they purchase government bonds, affect the broader economy and can be a general reflection of borrowing costs in the United States. Lower treasury yields reflect lower borrowing costs, thus sparking a decrease in mortgage rates. However, the extent to which mortgage rates will decrease in 2025 is generally uncertain due to underlying factors such as global economic conditions and federal reserve policies.
Should I Wait for Mortgage Rates to Drop Before Purchasing an Investment Property?
Whether or not you should wait for mortgage rates to drop before purchasing an investment property depends on a variety of factors including your personal financial health and your long-term and short-term investment goals. The decision to purchase a home right now, or wait to do so with a lower mortgage rate, will vary depending on your specific situation. While I can’t provide a straightforward “yes” or “no” to answer the question, I can provide you with the information to guide you to the right decision for you and your investment goals.
The Case for Waiting for Lower Mortgage Rates
Many investors may choose to wait for lower mortgage rates before purchasing an investment property.
Potential for Lower Monthly Payments
In simple terms, lower mortgage rates will reduce your mortgage payment. If your mortgage rate is less, your monthly mortgage payments will be less. For example, say you purchase a $500,000 3-bedroom house in Tampa, Florida where the average rent is $2,500.
6.62% mortgage rate on a 500,000 property:
- Home Price: $500,000
- Down Payment (20%): $100,000
- Loan Amount: $500,000 – $100,000 = $400,000
- Interest Rate: 6.62% (fixed for 30 years)
- Loan Term: 30 years
- Monthly payment: 2,591.41
5% mortgage rate on a $500,000 property:
- Home Price: $500,000
Down Payment (20%): $100,000 - Loan Amount: $500,000 – $100,000 = $400,000
Interest Rate: 5% (fixed for 30 years) - Loan Term: 30 years
- Home Price: $500,000
- Monthly payment: $2,147.29
Better Long-Term Investment Return
With a tenant occupied property, your investment should pay for itself, meaning your tenant’s monthly rental payments should pay for your mortgage. Drawing on the example, a mortgage rate of 6.62% for a $500,000 home will cost you approximately $2,591.41. With a monthly rental rate of $2,500, the whole payment plus an additional $91 will go towards your mortgage payment. This leaves you with no profit to put into your pocket.
However, if you wait for mortgage rates to drop, your monthly payment will decrease, allowing you to generate a higher return on your investment and earn a profit and buy, rent, and repeat. If your goal is to own an investment that pays for itself, waiting for lower mortgage rates may be the right decision for you. While the example above shows the potential consequences of purchasing a home at the current average rate of 6.62%, I highly encourage you to do your due diligence before purchasing an investment property.
The Case Against Waiting for Lower Mortgage Rates
While waiting for mortgage rates to drop may appeal to some investors, there are also a few drawbacks that pine against waiting for lower mortgage rates.
- Timing the Market is Difficult
While financial advisors and real estate gurus offer their evaluations of historical trends, current market rates, and future predictions, the real estate market and the economy are unpredictable. There will always be homes for sale, however, the real estate market is highly volatile because it is influenced by so many factors. While mortgage rates affect the market significantly, so do supply and demand, government policies, unpredictable global events, and natural disasters.
With that being said, successful investors must approach real estate opportunities with flexibility and knowledge.
- Current Market Opportunities
Although mortgage rates are historically high, the Tampa real estate market has begun its shift into a buyer’s market. A buyer’s market is created by a surplus of supply and a decrease in demand, making the market less competitive and giving buyers an advantage over sellers. The advantage of high mortgage rates is that less people are looking to buy, worried about the commitment of high interest and less affordability. With the combination of high mortgage rates and a market saturated with $465 million of new residential construction in 2024, prices are decreasing and many properties are selling below asking price.
For those investors looking to make a lower upfront investment, purchasing a home right now could be the right decision. When mortgage prices decrease again, the market will become more competitive, consequently raising purchase prices across the board.
- Investing in Real Estate is a Long-Term Strategy
While high mortgage rates are a deterrence for many, it is essential to keep in mind that real estate investment is typically a long-term strategy. Those investors looking to build a large portfolio and hold onto their assets for an extended period of time will see a number of economic fluctuations and market trends. Small changes in mortgage rates may not drastically impact your return over time if you do hold a larger, steady income earning portfolio.
How to Make the Right Decision for You
- Assess Your Financial Situation
Deciding whether or not to wait for interest rates to drop before purchasing an investment property will rely heavily on your financial situation. When making this decision, it is essential to analyze your budget, ability to afford expenses in addition to mortgage payments, and your short-term and long-term goals. Identifying your investment strategy and researching the market is crucial.
- Consult With a Tampa Property Manager
In addition, I highly recommend consulting a Tampa property manager. While real estate agents may push you to make a purchase for their own benefit, a property manager can provide you with insight into the rental market and paint a picture of what to expect. At the Listing Real Estate Management, we know the value of meeting your investment goals and doing so with intent.
While we emphasize the lucrative benefits of investing in the Tampa Bay area, we know that trust and transparency go a long way in property management. We believe in our authenticity, attention to detail, and honest guidance to form our successful boutique property management experience in the Tampa Bay area.
Making investment decisions can be difficult, but you don’t have to do it alone. At The Listing, our property managers have years of experience in the Tampa Bay investment industry and we want to help you meet your goals. If you’re looking for help in navigating the challenges of high mortgage rates and investment decisions, we are here for you! Contact us today to get started on your successful and smart investment journey!
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