Is it a good time to buy a house? 3 housing market factors to considerIf you need to finance your next home purchase, there are three market factors you should consider.
1. Mortgage ratesDespite last year’s dip, current U.S. mortgage rates are generally around 6%-7%. Although these numbers appear higher than in previous years, the national mortgage rate was above 7% in December 2022.
2. Median home pricesThe current national median home price is around $380,000, a 4% increase from last year. Given the momentum of increasing housing prices, now might be an opportunity to secure a home before the price increases, as they have done historically.
3. Home supplyHousing has been in short supply for over a decade, and this year is no exception. A 14% increase in construction costs is also keeping builder confidence low, preventing new homes from entering the market.
When should I buy a house? 7 questions to ask yourselfMortgage rates are up, home prices are steadily increasing, and home supply remains stagnant. So, is now a good time to buy a house? That depends on how you answer the following questions.
1. What is motivating this purchase decision?Whether this purchase is for your first or second home, consider what is motivating the investment. Potential answers could include:
- I’m ready to stop paying rising rent prices.
- My family is growing and I need more space.
- I want to live in a specific neighborhood.
- I want to be closer to good schools.
- I’m ready to buy a vacation home.
- I want to make memories with my loved ones.
2. How long will I live there?Remember that a house is a real estate asset. The amount of time you plan on holding your property should be considered in your ownership. Mortgages can come with a 15- or 30-year fixed interest rate. If this purchase will be your new primary residence, there might be additional funding opportunities for you to explore. Or if you want to buy a second home to visit on occasion, factor other expenses such as property management into your budget.
3. Am I financially stable enough to purchase a home?Purchasing a home is a large financial commitment, and lenders will examine your financial history before deciding to give you a loan. Review the following elements before you decide to buy a home:
- Debt: Loans and credit card debt can take away from your housing budget. Attempt to pay off your debt before applying for a home loan.
- Credit score: Your credit score will help determine what kind of funding opportunities you have while financing a new home. Aim for a credit score above 620, although a score above 740 would be ideal.
- Savings: Before purchasing a home, reflect on how much money you need for an emergency fund and set it aside from your housing budget.
- Investments: Ideally, you want to be financially secure enough to contribute to a retirement account and other investments before purchasing a home.
4. What can I afford to spend on a mortgage?There are several factors that contribute to the cost of owning a home, but your mortgage payment will most likely be the largest chunk of your housing costs. Consider the following expenses while determining if now is the time to buy a house:
- Property taxes
- HOA fees
- Property management
5. Do I have enough for a down payment?Although most of the home can be financed through a mortgage, you will still be responsible for providing around 20% of the purchase price upfront. Depending on the cost of a home, primary and second home down payments can range from $10,000 to well over $100,000. While it is possible to find additional funding for down payments, this will increase your monthly payments. Try to save up the cost of the down payment before buying a home.
6. Do I understand the responsibilities of home ownership?Owning a home is a major responsibility that requires a long-term commitment. You may need to sacrifice luxury expenses to pay your mortgage, maintenance, taxes and insurance. Although you will no longer be paying rent, keep in mind that owning a home does come with recurring expenses like utilities and repairs.
7. How will this affect my future financial goals?Take stock of your future financial goals and reflect on how buying a house could affect them. If you will be financing your home, remember that you’ll have significant housing costs that may require you to curtail savings for things like children’s education and retirement. What’s more, these housing costs could require you to sacrifice aspects of your current lifestyle like vacation planning and spending habits. Consider if you are ready for this lifestyle change or if you are comfortable putting larger goals like owning a second home, on hold.
When should I wait to buy a house?It may not be the best time to buy a house if other financial concerns are distracting from your housing budget. If the following factors are affecting the housing market where you want to live, it may be the ideal time to buy a house:
- Home values are dropping
- Inventory is increasing
- Personal finances need to improve
- Other investments need your attention