I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. Buyers ask me every week whether to wait for rates to drop — and I’m going to give you the same honest answer I give every client: the math almost never works the way people think it does. Call (800) 239-1103.
The Assumption That Gets People Into Trouble
When buyers say “I’m waiting for rates to drop,” they’re imagining a world where prices stay flat and rates fall — so they buy the same house for the same price but with a lower payment. That world doesn’t exist in California.
Lower rates create more buyers. More buyers chasing the same limited inventory drives prices up. The two forces — rate relief and price appreciation — have historically offset each other significantly, and in California’s supply-constrained markets, price appreciation often wins. You get the lower rate and pay more for the house.
What History Actually Shows
The most instructive example is 2020. The 30-year fixed rate dropped from 3.6% in January 2020 to 2.65% by January 2021 — a 95 basis point decline. That’s a big rate move.
What happened to California home prices during that same period? The statewide median went from $562,990 in January 2020 to $699,000 in January 2021 — a 24% jump in 12 months. The payment on the $562,990 home at 3.6% was $2,557/month. The payment on the $699,000 home at 2.65% was $2,818/month. Rates dropped a full percentage point and monthly payments went up.
That’s the California market. Low inventory, high demand, and rate-sensitive buyer behavior make the supply-demand response swift and significant.
The Math on Waiting in Today’s Market
Let’s run the specific numbers for a California buyer looking at a $1,100,000 home today, with 20% down — a $880,000 loan at 6.75%:
Today’s scenario: Monthly principal and interest = $5,709
Now assume you wait 12 months. Rates drop. But prices also move. Here’s what the monthly payment looks like under different scenarios:
| Rate After Waiting | Home Price If Appreciation Is 5% | Home Price If Appreciation Is 8% | Monthly P&I at 5% Appreciation | Monthly P&I at 8% Appreciation |
|---|---|---|---|---|
| 6.25% (–0.50%) | $1,155,000 | $1,188,000 | $5,710 | $5,869 |
| 5.75% (–1.00%) | $1,155,000 | $1,188,000 | $5,431 | $5,581 |
| 5.25% (–1.50%) | $1,155,000 | $1,188,000 | $5,162 | $5,306 |
| 4.75% (–2.00%) | $1,155,000 | $1,188,000 | $4,903 | $5,040 |
At a 0.50% rate drop with 5% price appreciation, your monthly payment is essentially unchanged — $5,710 vs $5,709 today. You waited a year, paid more for the house, and got nothing for it except 12 months of rent and no equity accumulation. You’d need rates to drop a full 2% just to get a meaningful payment improvement — and even then, price appreciation at 8% chews through most of the savings.
How Much Would Rates Need to Drop to Make Waiting Worth It?
Here’s the break-even calculation. You’re waiting to buy a $1.1M home with 20% down. Every month you wait, you’re paying rent — call it $4,500/month in a market where a mortgage is $5,709. The gap is $1,209/month in higher housing cost from Day 1 of ownership.
But you’re also missing equity accumulation. At 5% annual appreciation on an $1.1M home, you’re missing roughly $4,583/month in equity growth. Combined: the real cost of waiting is closer to $5,792/month — not just the payment difference.
For a rate drop to fully compensate for 12 months of missed appreciation plus rent premium, you’d need rates to fall approximately 2.0–2.5 percentage points without a corresponding price increase. That has not happened in California in a supply-constrained market since the early 1980s.
The Better Strategy: Buy Now, Refinance Later
This is the approach I recommend for the right buyer in the current market. You lock in today’s price — before appreciation continues — and you accept today’s rate knowing you’ll refinance when the rate environment shifts. The refinance call is fast: I can typically turn a refinance in 3–4 weeks for existing clients.
Here’s the math on the refi strategy. You buy a $1.1M home today at 6.75%, 20% down, $880K loan. Your monthly P&I is $5,709.
18 months from now, rates are at 5.75%. You refinance. New loan balance (after 18 months of payments): approximately $862,000. Monthly P&I at 5.75%: $5,031. Monthly savings: $678. Refi closing costs: $8,500. Break-even: 12.5 months. You’ve lowered your payment, locked in 18 months of equity growth, and you break even on the refinance cost in about a year.
Compare that to the wait strategy: you paid rent for 18 months, prices rose, and you’re now buying at a higher price even with the lower rate. The math doesn’t close.
When the Rate-Waiting Strategy Actually Works
There is one scenario where waiting for rates specifically makes sense — and it’s narrower than most people think: when you’re borderline on qualification.
If you qualify for the purchase today but your DTI is at 42% and you’re at the edge of lender guidelines, a rate drop of 0.50–0.75% might bring your qualifying payment down enough to comfortably fit within program limits — and open up better lender options. That’s a legitimate reason to wait a short period if you have conviction that rates are moving in the near term.
Similarly, if you’re in a softening micro-market — some inland California areas where prices have been flat or declining — the price appreciation assumption changes and the math on waiting improves. Marin County, San Francisco, and coastal Southern California are not those markets. The supply constraints are too severe.
What I Tell Clients Who Are on the Fence
After 26 years in this business, the buyers I’ve watched make money in California real estate consistently did one thing: they bought when they were financially ready, not when the market was “right.” Because the market in California is never obviously right. There’s always a reason to wait — rates, prices, uncertainty, elections, Fed policy. The buyers who waited for perfect conditions mostly just waited.
The buyers who bought when their credit was solid, their down payment was in place, and their income was stable — and who planned to stay for five or more years — almost universally came out ahead. Not because they timed the market. Because they stopped trying to time it.
If you want to run the specific numbers for your situation — your income, your target price range, your current rate expectations — call me at (800) 239-1103. I’ll give you the same analysis I just gave you here, but with your actual numbers.
Frequently Asked Questions — Waiting for Rates to Drop in California
What happens to California home prices when mortgage rates drop?
In California’s supply-constrained markets — the Bay Area, coastal Southern California, Marin County — home prices typically rise when rates drop, because lower rates bring more buyers into a market that already has insufficient inventory. The clearest example is 2020: rates fell from 3.6% to 2.65% while California median home prices rose 24% in 12 months. Monthly payments went up even as rates fell. This pattern is more pronounced in high-demand, low-inventory markets than in areas with more housing supply.
Is it better to buy now at 6.75% or wait for rates to drop to 5.75%?
In most California markets, buying now at 6.75% and refinancing when rates drop to 5.75% outperforms waiting. When you buy now, you lock in today’s price before appreciation continues. When rates fall, you refinance — typically for $8,000–$12,000 in closing costs — and capture the rate savings from that point forward. A buyer who waited for the rate drop paid more for the same house (because prices rose while they waited) and ended up with a higher monthly payment despite the lower rate. The refinance strategy gives you the lower rate without the higher price.
How much would mortgage rates need to drop to make waiting worthwhile?
In a California market with 5–8% annual price appreciation, rates would need to drop approximately 1.5–2.5 percentage points — with no corresponding price increase — for the rate savings to offset 12 months of missed equity growth and continued rent payments. That combination (large rate drop, flat prices) has not occurred in California’s major coastal markets in decades. In markets with slower or flat price appreciation, the break-even point is lower and the case for waiting improves.
What is the “buy now, refinance later” strategy and does it work?
The “buy now, refinance later” strategy means purchasing at today’s rate with the intention of refinancing when rates fall. It works when: (1) you have no prepayment penalty on your loan, (2) you keep your closing costs moderate and don’t pay excessive points upfront, and (3) you’re prepared to act quickly when rates move. On a $880,000 loan, if rates drop from 6.75% to 5.75%, you save roughly $650–700/month. With refinance costs of $9,000, your break-even is about 13 months — meaning after 13 months you’ve recouped the refinance cost and are saving money indefinitely. This strategy works best for buyers who plan to stay in the home for 5+ years.
Are California mortgage rates expected to drop in 2026?
As of September 2026, the rate outlook is uncertain. The 30-year fixed rate is currently in the 6.60–6.80% range — meaningfully below the 2023 peak of 7.75–8.00% but above the 5–6% range many buyers are hoping for. Significant drops to sub-6% would require either a sharp economic slowdown, a Fed pivot, or both. Buyers waiting for those conditions should weigh the ongoing cost of renting and missed equity accumulation against the rate savings they’re hoping for.
Talk to Michael Directly
DiVita Home Finance | Tiburon, CA | In lending since 2000, founded DiVita Home Finance in 2007. Michael DiVita DRE #01372066 | NMLS #241655. Company DRE #01818285 | NMLS #323700.
💬 Text: (310) 849-9124
