Jon Lovette/Getty Images; Illustration by Austin Courregé/Bankrate
After a few intense years in the housing market characterized by bidding wars and exorbitant prices, the dynamics have gradually started to change. Mortgage interest rates remain stubbornly high and as a result more than a few potential buyers have been pushed aside. This drop in demand in turn leads to lower prices.
So what does all of this mean for buyers who still have hope? Is it the right time to buy a house? Let’s explore.
Is it the right time to buy a house?
Buying a home is a big investment and an extremely personal decision. In general, the time when it makes the most sense to take the plunge is when you are financially ready to do so. Simply wanting a home is not necessarily the best reason to buy one.
Here are some questions to consider: Is your credit score in good shape? Do you have a healthy down payment fund, as well as a savings cushion for possible emergencies? How about a stable lifestyle and job security? If you answered yes to all of these, then buying a home may be the right decision right now.
For at least some Americans, however, the outlook is uncertain. The March Fannie Mae Home Purchase Sentiment Index found that 21% of consumers surveyed feared losing their jobs in the next 12 months. An overwhelming 79% felt now was a bad time to buy a home.
The current inflation environment is also an important consideration. While having a fixed monthly mortgage provides some degree of protection against the rising cost of living, there are still other property expenses to consider in today’s economy. “Many of the ongoing costs of home ownership are still subject to inflationary pressures: maintenance, repairs, upgrades, property taxes and insurance to name a few,” says Greg McBride, CFA, analyst Chief Financial Officer of Bankrate.
Housing supply and inventory
Even with the market cooling and home prices falling, don’t automatically expect a bargain. Housing inventory continues to be quite limited, keeping sellers in control and preventing prices from falling too far. February data from the National Association of Realtors shows just a 2.6 month supply of existing homes for sale. Generally, a five to six month supply is needed for a balanced market. To complicate matters, potential sellers are unlikely to list homes when mortgage rates are 6% or higher.
A lack of new homes is further exacerbating the problem, with market confidence among homebuilders weak according to the National Association of Home Builders/Wells Fargo Housing Market Index. And renters aren’t faring much better right now, as Zillow’s March 2023 Rental Market Report shows asking rents across the country are on average 6% higher than there are. a year. Typical rent is currently just under $2,000, according to the report, although rental prices can vary widely between markets.
Does it make sense to buy now?
Of course, there are pros and cons to buying a home in this uncertain economic climate. There are a lot of expenses associated with buying a home, including a large down payment, closing costs and more, and many people won’t want to tie up their money with a possible impending recession. But if you have your reasons — like a need to expand, downsize, or move for a job — then 2023 isn’t necessarily a bad time to be house hunting.
This year is better than last year because the housing market has cooled.
— Greg McBride, Chief Financial Analyst, Bankrate
If your finances are in good shape, things could actually be better for homebuyers in 2023 than in the recent past. “This year is better than last year because the housing market has cooled, you are not competing with many offers above the asking price and you can take the time to do your due diligence “says McBride.
But if you’re not as financially secure as you’d like – for example, if you’re paying off high-cost credit card debt or student loans, or if you really could benefit from a little more time to build up your savings cushion and boost your credit score — so waiting until you’re on better financial footing may be a smarter strategy.
Buying a home is one of the most important financial transactions that most people make. It’s a decision that requires a lot of planning, regardless of the broader market environment. Take a close look at your finances and make sure you’re on solid ground. Check your credit score, review savings balances and debt accounts. It’s also important to consider your work situation and long-term goals.
If you’re ready to become a homeowner, start by getting pre-approved for a mortgage. This will help you understand what your budget should look like. Next, find a local real estate agent who can help you navigate the current real estate market in your area. Ask friends, relatives, or colleagues for agent recommendations, and be sure to check online reviews from previous clients about the agents you’re considering.
Should you buy now or wait? The answer to this question depends on your personal finances and situation. If you aren’t financially stable or are worried that a recession will affect your job security, now is probably not the time to make a major purchase. However, if you have good credit and can afford a down payment and other fees, buying now means you can start building capital immediately and even avoid future mortgage rate increases.
While spring is traditionally the best time to sell a home, the best time to buy tends to be during the colder months. A 2022 report from ATTOM Data Solutions shows that buyers who closed in October, as well as during the winter months, got the best deals.
It depends. Real estate tends to increase in value over time, but that’s not a certainty. If you are financially stable and reasonably certain to stay put for a while, buying a home can be a good way to build wealth. But it’s not worth it if the purchase makes you housing poor or stretches you too thin to comfortably afford other essentials. Bankrate’s Affordability Calculator can help you figure out how much home you can afford.