Is It A Good Time To Buy A House? A Decision Guide

Have you been endlessly scrolling home listings asking yourself, “Is it a good time to buy a house?” Now is the time to stop scrolling and start thinking about the factors below before you start calling the moving truck.

Is Now A Good Time To Buy A House?

If you’re looking for the best time to buy a house, you need to think about your local market, the state of the market across the country, and your personal financial situation. Housing markets change frequently due to several factors, all of which you’ll need to evaluate.

Market Factors Affecting Whether Now Is A Good Time To Buy A House

These are three of the most important factors to consider:

Current Mortgage Rates

To have a competitive edge in today’s housing market, it’s important to know whether mortgage rates will change or stay relatively the same. It’s helpful to look at recent trends to inform your decision-making.

The economy began to overheat as inflation started rising in 2021. In response, the Federal Reserve (Fed) began raising interest rates at the beginning of 2022, causing mortgage rates to more than double to 7% by the end of 2022. Now in 2023, the average 30-year fixed mortgage rate has fluctuated between 6% – 8%, recently peaking at 7.79% as of October 26.

Where mortgage rates go from here largely depends on whether the Fed decides to raise interest rates or not. In their most recent meeting in September, the Fed chose to keep them as they were. Now we will have to wait to see how the economy responds. If inflation continues to fall, then they will likely halt rate increases down the road and cause mortgage rates to fall. If inflation remains elevated, more rate hikes may be ahead. While inflation has significantly decreased from 8.9% in June 2022 to 3.2% in October 2023, it is still above the Fed’s goal of 2% inflation.

Based on these recent factors, Freddie Mac predicts that average mortgage rates will remain above 6% through the first quarter of next year. If you can’t afford the monthly payments on your dream home at that rate, it may be best to wait until 2024 to enter the market.

Current Housing Inventory

The best time to buy a house is during a buyer’s market when the number of homes is greater than the number of potential buyers. Unfortunately for buyers, housing inventory has remained below demand since the 2008 financial crisis and reached a record low last year. With rates increasing, homeowners that are locked in to low rates have no incentive to sell their homes because they’ll have to buy new ones at much higher rates.

While existing homes for sale remain low, there is light at the end of the tunnel. Home builders are working to increase supply by building more new homes, but supply is still below demand. Since existing homeowners are unlikely to sell their homes while mortgage rates remain elevated, the best way to buy a home may be to buy a brand new one. If there are new developments popping up in your area that you can afford, now may be the time to strike. However, you may need to wait for construction to be completed on the home that’s right for you.

Current Home Prices

Home prices each year can vary greatly depending on the current state of affairs. Low mortgage rates paired with an inventory shortage during the pandemic led to a competitive market with homes being sold within hours for well over the asking price. Once rates began to rise, the red-hot housing market came to a halt. However, the lack of supply remained an issue and kept prices from falling dramatically throughout the country.

After the median sales price for a home skyrocketed from $322,600 in Q2 2020 to $479,500 by the end of 2022, buyers saw some relief with prices falling to a median of $431,000 in Q3 2023. Where prices go from here may largely depend on the two factors above. If mortgage rates decrease, there will be even more demand, but there will also be more supply from existing homeowners selling their homes. If inventory increases significantly, prices could decrease even more. However, if economic factors such as a recession cause supply to remain low, prices could remain elevated.

Personal Factors Affecting Whether Now Is A Good Time To Buy A House

Consider these factors that you can control as well:

Credit Score

Your credit score is an extremely important factor in determining when to buy a house. While the minimum score you need depends on the type of loan you apply for, a conventional loan requires a score of 620. If you qualify for a government-backed loan you may be able to qualify with a lower credit score, but the higher your score, the more likely you are to be approved and the better your rate will be.

There are certain actions you should avoid to retain a good credit score. If you need to apply for a credit card or another type of loan that requires a hard inquiry into your credit, it will temporarily lower your score which could affect your ability to receive a home loan. Missing a debt payment will also lower your credit score on a long-term basis which may take considerable time to recover from. If you’ve run into one of these situations and are in no rush to buy a home, it may be advisable to wait until your credit score increases again so you can get the best possible mortgage rate.

Savings

The amount you save for a down payment is also a key factor because it directly influences the amount of risk your lender assumes. The more you provide in a down payment, the less money the lender has to loan you, therefore lessening the risk for the lender. If you cannot provide at least 20% down on a conventional mortgage loan, the lender will require you to purchase private mortgage insurance (PMI) to protect themselves from the added risk. This will increase your monthly payment and make the home more expensive over time.

Debt-To-Income Ratio (DTI)

Your debt-to-income ratio is an important factor when considering buying a house because it shows how much of your income is already being used on other forms of debt besides a mortgage. If you have a low DTI, meaning you have less debt compared to a high income, it shows that you have the ability to take on more debt. While lenders may have different DTI requirements, you will typically need a DTI of 43% or less to qualify for a mortgage. If your DTI is higher than 43%, you may want to take the time to pay down your debt or increase your income before buying a home.

Job Security

Whether you have a stable job with enough income to cover your mortgage is another key factor to consider before buying a home. Lenders want to be sure that you will be able to consistently pay your mortgage, and having inconsistent income due to switching jobs too often may be a red flag. It may be best to wait to buy a house if you cannot show several years of consistent income or are worried about losing your job in the near future.

Should You Buy A House Now Or Wait Until 2024?

Is This A Good Time To Buy A House? FAQs

Will 2024 be a good time to buy a house?

The housing market is heavily influenced by whether the Fed will continue to raise interest rates. If inflation subsides and the Fed chooses not to increase interest rates, then houses could be more affordable with lower mortgage rates in 2024.

Is it better to buy a house before the end of the year?

Freddie Mac does not expect interest rates to decrease significantly by the end of the year. They also predict that the tight inventory will keep housing prices from decreasing significantly. These factors are combining to force many buyers to wait until 2024 to buy.

Should I buy a house during a recession?

There are both advantages and disadvantages to buying a house during a recession. While uncertain economic conditions could ensure less competition for great houses, your financial situation could also be at risk if you lose your job.

When is it a bad time to buy a house?

When to buy a house ultimately depends on your personal financial situation. While you may benefit by timing the market, it is usually best to focus on the personal financial factors that you can control.

The Bottom Line: Is Now A Good Time To Buy A House?

When the market is red-hot, the instinct most people have is to think it is too good to last. However, the instinct to “strike while the iron is hot” might be misguided when it comes to looking ahead to 2022, because it is looking like it will be a good year to buy a house.

Market timing should not be the only factor in deciding whether 2022 is the best time for you to become a homeowner. Being financially prepared is equally important. If you feel like you’re ready to make the leap into homeownership, working with a real estate agent from Rocket Homes℠ will help you navigate the market more easily. We can match you up with a REALTOR^Ⓡ who works with homes in your budget and understands your goals.”