Is NOW the Right Time to Buy? It Just Might Be.

Buy now, or wait? That seems to be the question that prospective homeowners have been struggling to answer in today’s tricky housing market.

And the market IS tricky. After all, housing affordability is at an all-time low, home prices are hitting new highs as interest rates put the squeeze on supply, and mortgage rates are approaching heights not seen in 22 plus years.

So it seems as if sitting on the sideline and waiting for something to change might be the right strategy. 

But what if it’s not?

Some financial experts such as Dave Ramsay believe that if you are financially able, you should strike while interest rates are high and while there is less competition due to increased supply in the market. Ramsay has been insistent that although interest rates do potentially decrease purchasing power, YOU get to decide when to buy a house based on what’s right for you and your family, not what the Federal Reserve is doing. 

It’s true that interest rates play a large role in determining how much a buyer can afford to pay – or is willing to pay – on a new mortgage. Higher rates shrink buying power because they make home loans more expensive. For example, the monthly payment on a $350K home with a modest 5% down payment would be roughly $1,995 with a 6% mortgage rate on a 30-year mortgage, not including home insurance and property taxes. With a 7.0% rate, the monthly payment would be $2,210 — $215 higher. 

Yes, mortgage rates are expected to go down in 2024 – and they’ve already started. Average U.S. rates for both 30-year and 15-year fixed-rate mortgages began steadily dropping in November 2023, and that trend has continued into 2024. Specifically, the typical rate for a 30-year fixed-rate mortgage fell from 7.79% in October 2023 to 7.03% in May 2024. Furthermore, the National Association of REALTORS® believes rates will continue going down in 2024, but they’re only predicting a drop of around half a percent (to 6.5% for 30-year mortgages) by the end of the year.

But even if interest rates don’t fall significantly in the near future, there are signs that this may not be the worst time to make an offer on a home you love. For example, days-on-market figures are up, giving buyers more time to make an informed decision. NAR data shows that homes typically spent 26 days on the market before selling in April, up from 22 days a year ago. And available housing inventory, while still low, is rising — up 9 percent month-over-month and a healthy 16.3 percent year-over-year, per NAR. This absolutely plays in favor of the prospective buyer.

The general formula in real estate is this: LOWER RATES + MORE INVENTORY = MORE COMPETITION. More competition drives up home prices. This means that if you’re able to float a slightly higher mortgage payment NOW, you can take advantage of a lower purchase price and refinance later when interest rates drop, improving your monthly bottom line while building instant equity rather than waiting for the market to change.  

In reality, if you can answer yes to these three questions, now might be a good time to buy.

Do you have excellent credit? 

No, you don’t need an exemplary credit score to be approved for a loan. However, you will get the best deal on your mortgage if you’ve been taking care of your credit. The median credit score for mortgage borrowers in the first quarter of 2024 was a very high 770, according to the Federal Reserve Bank of New York. You will be in line for the lowest mortgage rates a lender offers if you can prove that you are a low-risk borrower. 

Have you saved enough for a down payment? 

The typical down payment for first-time home buyers is 8% and for repeat buyers is 19% according to an NAR survey of home buyers who purchased a primary residence from July 2022 through June 2023. A larger down payment may also decrease your interest rate. Down payment assistance programs DO exist, so make sure you reach out to me if a downpayment is preventing you from making an offer on a home.

Are you planning to stay in the home for a while? 

This one is a little tricky. Beyond the purchase price, buying a home comes with closing costs that can run thousands more. Additionally, purchasing a home while interest rates are high with the intention of refinancing down the road means that you won’t be moving anytime soon. Selling a home very soon after buying can have serious tax implications. There ARE advantages of building equity quickly and turning the property over, so please reach out to me to learn more about this. My wife and I have done this SIX times in the past nine years with no negative tax impact. 

So what’s next?

Many of the numbers provided in this post are based on national statistics. Regardless of national headlines, real estate is a local game and can vary greatly from one market to another, even within the same state. In today’s home buying market, it’s more important than ever to find a real estate agent who really knows the trends of your local area. 

So, buy now, or wait? I’d be honored if you would like to sit down and discuss how your situation combined with the current market might answer this question.