Purchasing a house is a significant investment, and one of the most common questions that home buyers ask is whether now is a good time to buy a house.
The answer to this question can depends on several factors, such as the state of the real estate market, the economy, and your own personal circumstances.
The Real Estate Market
One of the factors to consider when deciding if now is a good time to buy a house is the state of the real estate market.
A buyer’s market is a period where there are more homes available for sale than there are buyers, and prices are typically lower.
In contrast, a seller’s market is when there are more buyers than homes available, and prices tend to be higher.
Understanding the current state of the real estate market is helpful for seeing the big picture, but it shouldn’t really factor into your decision on whether or not it makes sense to buy.
People buy homes in any market. What matters is the health of your personal finances. Ever heard the term dollar cost averaging into stocks. It’s because trying to wait to buy an asset when you think the time is perfect is a fool’s errand.
Personal circumstances play a crucial role in determining if now is a good time to buy a house. For example, if a person has a stable job and a good credit score, they may be in a better position to purchase a home.
On the other hand, if a person has recently lost their job or has a low credit score, they may not be in the best position to buy a home at this time.
Lenders will focus on:
- Your past two years of income to establish your debt to income ratio: Any monthly debts/payments that show up on your credit score divided by your gross monthly income. Ideally this percentage is less than 50%. E.g. $2,000 monthly debt/ $5,000 monthly income = 40% Debt to income ratio.
- Your credit score to determine your interest rate. Note, there are different types of scores. Look up your Mortgage score, then take the middle score between all 3 bureaus.
Timing the Housing Market
One thing is clear, if you think you’re going to time the market to find the best combination of home prices and interest rates, you won’t. Anyone who says or thinks otherwise is fooling themselves.
Doesn’t matter what market it is? Stocks, bonds, real estate.
There’s a bunch of factors that determine interest rates and home prices, but for simplicity’s sake, let’s say you held off buying in late 2020 to early 2022 because the market was crazy and seller’s were taking advantage of buyers in many cases.
However, many of those who bought brag about how they got a crazy low 2.5% interest rate. Seriously, people can’t wait to tell you about their interest rate. Yeah they paid 50K over asking price but their mortgage is 30% lower. Not a bad deal.
“I’m going to wait until interest rates drop again”
Ok, first off they’re not going back to those rock bottom pandemic rates. That was a black swan event. Hoping and waiting for another catastrophic event to occur is pretty selfish and not a good strategy.
But maybe you’re waiting for rates to go below 5%. Ok, reasonable. But so is everyone else. Again, as interest rates decrease, home prices increase.
So now that you have an interest rate that you’re comfortable with, you’re facing more competition, meaning the price of the home may increase because more people can afford it and therefore it’s a multiple offer situation.
Now you’re back to square one, where you’re getting outbid left and right like you did for the past two years.
The Recession Bros
Headline after headline touts an incoming recession. Who knows? Maybe there will be, maybe there won’t be. Will it be mild? Will it be the biggest crash ever? Will it only affect some regions and not others?
Good luck trying to figure this out. Control what you can control. But if you’re letting people scare you out of your opportunity for wealth and you can afford to buy a home, that’s on you.
And by the way, interest rates drop during times of recessions because the Fed needs to stimulate the economy again, so may just get your wish.
Whether home prices will decrease as well is anyone’s guess, but just know that if there is some sort of crash in your local market, you won’t be able to take advantage because you’re not big money. You can’t compete with Wall Street institutional buyers.
They will come in and buy up everything the same way they started to do in 2021. They have billions of dollars. In cash. We. Can’t. Compete.
As always, buy if and when you’re ready. Be it next month or next year. If you’re not ready, don’t. Seriously, you don’t want to be house poor, struggling to make payments, or have a sky high interest rate because you have poor credit. Work on improving your personal finances first.
Just please, for the love of generational wealth, stop trying to time the market.
Let us know if you need a realtor.