When is the Best Time to Buy a House?

Tree changing colors in the fall

Whether you’re seriously looking or not, you can have a lot of fun taking virtual tours of listed homes. For some, it’s mindless scrolling through stunning photos of homes that seem out of reach. For others, it’s an easy way to identify options and preferences when it comes to home layout and features.

No matter where your mind takes you, we can all agree there’s a point of hesitation. You have to consider interest rates, a down payment, and even moving costs. Just don't overlook the many benefits like increasing your wealth over time and creating memories in your own home.

Move past your curiosity and ask yourself, “is now a good time to buy a house?”

To best answer whether or not now is the best time to buy a home, take the following factors into consideration.

Understand local market conditions

Where do you live? Are you in a hot real estate market like Denver, Sacramento, Phoenix, or Austin? Does that make you feel like you’ll never be able to afford a home of your own? You may be surprised. After all, rising home prices don’t just affect home purchases, they affect home rentals, too.

Let’s consider Sacramento. Per Zillow, the average, current home value is $316,000 compared to rent of $1,627. After three years, if you buy, your Sacramento home will have $96,464 in equity (available to you when you sell).

What does this mean? Well, looking at your gross costs, equity, and investment potential, it's better for you to buy than rent if you plan to live in your Sacramento home for more than three years and four months. And that same three-year rule applies to Denver, Phoenix, and Austin. So if you choose to call any of those cities “home, sweet, home” for three years or more — then now is a good time to buy a home. You’ll enjoy far more equity that way!

Consider your current home equity

Your home equity is your home’s worth when not considering any debts against it, and it can increase over time as your home value increases. This may come from a home remodel or simply owning a home in an appreciating real estate market. All in all, equity comes with a lot of benefits, assuming you’re a homeowner.

According to Black Knight Analytics, the average homeowner gained $14,700 in tappable equity over the past year. And most homeowners have $113,900 available to draw. So if you’re a homeowner and are looking for something that fits you better and will last you longer (whether it’s upgrading, remodeling, or downsizing), you’re in luck. You can use your home equity to pay for renovations or even to use for your next down payment. 

On the other hand, if you’re a renter, home equity may mean nothing to you. Just know it means something to your landlord because an appreciating real estate market also means it’s ok to increase rent.

Case in point, the national rent average reached an all-time high of $1,405 in June, a 2.9% increase from a year earlier, according to data from Yardi Matrix.

So renters, why waste money by paying your landlord’s mortgage? For you, now may be a good time to buy a home. You can start enjoying the many benefits of homeownership, including stable monthly mortgage payments (when choosing a fixed interest rate), so there are no annual rent increases. 

Follow mortgage interest rates

The news is almost always reporting about “interest rates on the rise.” But what you need to ask is: on the rise from what?

Talk to any housing economist about mortgage rates, and you’ll hear they’ve been abnormally low since the housing crash.

A NerdWallet article from February of 2018 published a quote from Dean Baker, senior economist and co-founder of the Center for Economic and Policy Research. Baker said, “I remember in the mid-’90s, getting a 7% rate, being happy with that. The rates we’re looking at today are still, by any measure, pretty low. It’s the economy getting back closer to normal.”

Now, let’s talk hypothetical numbers. Say you borrowed $350,000 to buy a house using a 30-year fixed mortgage at 4% (4.41% APR).* You’re able to put 20% down to avoid mortgage insurance. A mortgage calculator translates this into monthly mortgage payments of about $1,337 (not including property tax or insurance). Over the life of the loan, you’d be paying $201,235 in interest.

If you wait a year and home prices drop by about 10%, you may be able to buy that house with a $315,000 loan. But if interest rates rise, you would end up paying more per month because it will cost you more to borrow money.

Ask yourself, is it better to buy now or wait a year and risk a higher rate? Remember, the scenario above is hypothetical. But you should keep in mind the average 30-year, fixed rate mortgage rate is over 4% (4.41% APR). Home prices are also rising. This combination can create challenges for home buyers. Add on the potential for rising interest rates and now really may be a good time to buy a home.

*Rates are for illustrative purposes only and are based on the assumption of a $350,000 fixed rate mortgage. It does not consider credit score, DTI, or current market conditions. This example was designed to provide comparative information and should be used as a general guide only. For current market rates, please contact one of American Financing’s dedicated mortgage consultants at (800) 910-4055.

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Determine the best season to buy

When is the right time to buy? That depends if you’re looking for the most choices (most inventory) or the best prices. If you’re interested in the most homes to choose from, then make your move in April.

If you want to find the best deals, then start your real estate search in late Summer or early Fall when fewer people are shopping.

According to Zillow, a good time to buy a home is late Summer, when there are more options and price cuts.  Zillow Chief Economist Dr. Svenja Gudell said, "Homes that may have been overpriced earlier in the year are more likely to have a price reduction, and those listings passed over in earlier months may look better with a fresh perspective."

Follow this advice, and you’ll find yourself having more leverage when it comes to offers and contingencies because sellers are getting anxious to get their home sold. Just be sure to allow yourself enough time to start the mortgage loan process.

Factor in your personal financial health

Consider yourself financially healthy — and likely ready to buy a home — if you have the following in order:

Reasonable debt-to-income (DTI) ratio

All of your debt added to your anticipated housing expenses, such as a mortgage, taxes, insurance, etc. determines your debt-to-income ratio (DTI). If your DTI is greater than 43% of your income, it may not be a good time to buy. If your DTI is lower than 43% of your income, then it’s worth moving into something you can call your own.

Well-padded emergency fund

Life happens, and sometimes you need to make a repair or replacement. We recommend maintaining three to six months worth of savings in an emergency fund.

Respectable credit score

You’re likely to get the best loan program and most affordable interest rates once you’ve tied a respectable credit score to your name. Think 700 or above, though lower scores do not disqualify you from a mortgage.

    As you begin the home buying journey, choose a lender who has your goals top of mind. Someone who will help you decide if now is a good time to buy a home. At American Financing, our mortgage consultants have been helping borrowers for nearly 20 years. We have licenses in all 50 states. So no matter where you want to call home, we’ll be there to guide you. If now is the right time for you to buy, trust us to help you find the best mortgage option for your situation.

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