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Should I buy a house now, or wait?

 

Buy now, or wait? That’s the question prospective homeowners have been struggling to answer in today’s housing market. Home prices have been skyrocketing since the pandemic, and the Federal Reserve’s work to tame inflation has sent mortgage rates soaring, too.

The combination has led many would-be buyers to pick the “wait” side of the equation. The volume of existing home sales was down more than 6 percent from December 2022 to December 2023, according to the National Association of Realtors. And, according to the Fannie Mae Home Purchase Sentiment Index released in January 2024, an overwhelming 83 percent of consumers believe it’s a bad time to buy a house.

However, after being at a constant disadvantage for the past few years, things have started to look better for buyers in many parts of the country. Days-on-market figures are way up, giving buyers more time to make an informed decision. Popular West Coast cities that had seen skyrocketing prices, like Seattle and San Francisco, saw double-digit year-over-year declines. And in December’s National Housing Report from RE/MAX, one of the biggest real estate brokerages in the country, CEO Nick Bailey declared that “There are many reasons to be encouraged about housing in 2024. If new construction starts increase along with mortgage rates dropping, move-up buyers may start to explore their options, making room for new buyers.”

 

So, is it time to buy a home? Or is it better to wait on the sidelines, in the hopes that either prices or rates see a significant drop soon? And what if there’s a recession? Here are some key considerations to help determine the way forward.

 

Is now a good time to buy a house?

 

Mortgage rates have backed off from the 8 percent highs hit in October, but they’re still close to 7 percent. And home prices are high as well: According to the latest Case-Shiller U.S. National Home Price NSA Index, they’ve now increased for nine straight months. Together, these factors might dissuade you from buying right now, and that’s understandable.

 

No matter which way the real estate market is leaning, though, buying now means you can start building equity immediately. It also means avoiding the potential for additional mortgage rate increases later: Rising rates can spell serious trouble for your monthly budget, and they also result in paying more in interest over the life of the loan.

 

“If a buyer finds a property they would like to call home, they should not delay,” says Stacey Froelich, a broker with Compass in New York City. “You cannot time the market, and a home should be a long-term investment.”

 

“When mortgage rates drop and more buyers come back into the market, home prices will rise,” Melissa Cohn, regional vice president of William Raveis Mortgage in Connecticut recently told her newsletter subscribers. “Remember, you ‘Marry the house and date the rate.’” To put it another way, you can always refinance later.

 

In general, if you can answer yes to these three questions, now is a good time to buy.

 

  1. Do you have excellent credit? Anytime you’re borrowing money, start by checking your credit score. The best deals on mortgages will be available to those with the best scores — in fact, the median credit score for mortgage borrowers in the third quarter of 2023 was a very high 770, according to the Federal Reserve Bank of New York. If you have demonstrated that you are a low-risk borrower with a history of on-time payments, you’ll be in line for the lowest mortgage rates a lender offers.
  2. Have you saved enough for a down payment? In addition to paying your bills on time, you should be sitting on a sizable chunk of change for a down payment. The more you can pay upfront, the less you’ll have to borrow (and so the less interest you’ll have to pay). Make sure you’ll have plenty left over, too: Lenders like to see additional cash reserves that can provide a cushion if something unexpected happens.
  3. Are you planning to stay in the home for a while? Beyond the purchase price, buying a home comes with closing costs that can run thousands more. So, to justify those one-time transaction costs, it’s wise to be reasonably certain that you won’t move again anytime soon — or that you’ll be financially stable enough to hold on to the property and rent it out. Selling a home very soon after buying can have serious tax implications.
  4.  

Should I buy a house now or wait?

 

Ultimately, the decision of when to buy a home is up to you. Life goes on, whether the timing is perfect or not. If you’re anxious to become a homeowner, you’ve met the criteria above and you’re financially stable, go ahead and start house-hunting.

 
 

While 1 percent might not sound like much, it can make a big difference in how much house you can afford over the long run. For example, Bankrate’s mortgage calculator shows that if you buy a $350,000 home with a 20 percent down payment, the monthly payment for principal and interest on a 30-year loan with a 7 percent interest rate is $1,862. The same loan at 8 percent brings those monthly payments up to $2,054 — $192 higher every month. That’s more than $2,300 each year.

 

Of course, it’s impossible to predict where rates will land by spring. But here are three instances in which it might make more sense to wait out the market until after this winter:

 

  1. If home values in your area are dropping: The country’s median home price hit a record high in June 2022, according to National Association of Realtors data. Since then, some hot metro areas have seen significant drops in median sale prices. Take Austin, Texas, for example: Redfin data shows that the median price in Austin in June 2022 was $620,000. By June 2023 that was down to $601,500, and by the end of the year it was down much further to $525,000. These declines may not be done yet, so it could pay to be patient for a bit longer.
  2. If inventory in your area is increasing: When there are more properties on the market to choose from, buyers enjoy more bargaining power. Since many buyers have been sitting on the sidelines due to the interest rate environment, some areas have seen a jump in inventory. However, according to NAR data, the country overall had 3.2 months worth of housing supply in December — much too low to meet demand.
  3. If your personal finances could use some love: The biggest reason to wait is if your current financial situation is not ideal. For example, if you are expecting a sizable commission check or bonus, an inheritance or some other windfall that would make a big difference in your down payment, waiting until it arrives makes sense. And if your credit score is low, waiting is also smart. Take some time to improve your credit and pay down your debt so you can qualify for better loan terms.

 

Analyze your local market carefully

 

Deciding whether to buy a house now or wait depends a lot on where you want to call home. Regardless of national headlines, real estate is hyper-localized and can vary greatly from one market to another, even within the same state.

 

Consider this December Redfin data from Texas’ Dallas–Fort Worth metro area: In Fort Worth, the median sale price of a home had decreased by 3.2 percent year-over-year. In Dallas, just 30 or so miles away, the median shot up by 19.7 percent. That’s a massive difference, all within the same metro area. In today’s homebuying market, it’s more important than ever to find a real estate agent who really knows your local area — down to your specific neighborhood — and can help you successfully navigate its unique quirks.

 

What if there’s a recession?

 

The odds of a recession in 2024 now stand at 45 percent, according to Bankrate’s most recent survey. And as you might imagine, recessions are a risky time to buy a home. If you lose your job, for example, a lender will be much less likely to approve your loan application.

 

Even if the recession doesn’t affect you directly, if your area is hard-hit, that could have a serious effect on the local real estate market. Fewer local people with the means to buy means a lower chance of homes selling, which could keep people from listing and decrease your options as a buyer.

 

There are some potential upsides to buying a home during a recession, though, if you’re financially able to do so. Notably, there will be less competition, which could help you find a great property that you otherwise couldn’t and make a great investment in your future.

 

Next steps

 

Trying to buy a house right now might feel overwhelming, but waiting too long can present challenges as well. Review your finances in detail, and think about how much you’re able to pay upfront as a down payment. Be sure to take the pulse of the town in which you’re hoping to live. Then, talk with an experienced local real estate agent to figure out whether you should buy now or wait until the market is a bit more friendly to your bank account.

UPDATED APRIL 1, 2023