For most people, a house is the most expensive thing they’ll ever buy. Timing a big purchase right could potentially lead to big savings. Is it a good time to buy a house right now? The answer depends on your personal situation, but some market trends could help you decide.
Is it a good time to buy a house?
Figuring out when the best time is to buy a house used to be relatively easy. For example, 2019 was a great time because mortgage rates were low, and home prices hadn’t skyrocketed yet. However, 2008 was bad because home prices were high and then plummeted. Yet, that doesn’t mean people in 2019 knew it was a good time to buy a house—or that people in 2008 knew it was a bad time.
Deciding whether now vs. some other time in the future is a good time to buy is difficult, but current market conditions could help you figure out at least part of the equation.
Reasons now is a bad time to buy a house
In 2024, houses received fewer offers and stayed on the market a little longer compared to 2023. While mortgage interest rates are lower than they were a year ago, they're still high compared to recent averages. That means it remains more expensive to borrow for a house than it’s been in decades.
The high interest rates have likely restricted supply. “If someone bought a home with a 3% mortgage, they might be hesitant to upsize into a higher priced home with a 7% rate,” says Bob Blackhurst, a realtor with Compass in Wilmington, Delaware. The result: fewer homes on the market than usual.
Given these issues, 83% of consumers think it’s not a good time to buy a house, according to a September 2024 survey from Fannie Mae, a leading provider of mortgage financing.1
Reasons now is a good time to buy a house
Finding your dream home—or even one that’s good enough—could be tough with today’s limited supply. If you find one you like, there are arguments for buying sooner rather than later.
Analysts think the Federal Reserve could continue rate cuts that began in September 2024, which could result in lower mortgage interest rates. “If interest rates were to drop in the near future, housing prices would go up,” says Blackhurst.
There are other possible side effects to interest rates trending down. It could lead to more homes on the market. That’s because homeowners might be more willing to move if rates are low enough for them to give up their current mortgage rate. The flipside: Lower interest rates could bring more buyers into the market, creating more competition. “There are already lots of buyers with rates at 7%. Imagine the demand if rates fall to 3% again,” Blackhurst points out.
Even with today's higher rates, you could buy now and refinance to a lower rate in the future. That could lower your monthly payment, although your mortgage terms would restart. If you don't like the prospect of 30 more years of payments, you could consider switching to a shorter-term mortgage (e.g., from 30 years to 20 years or even 15 years). Some lenders even offer non-traditional mortgages, or more flexibility on repayment terms than a 30 year mortgage.
Future housing market trends
Blackhurst admits predicting what’s next is a guessing game, but thinks the overall market is stable. “The great fear talked about on the news and during workplace chat has been an imminent market crash, but that hasn’t happened,” he says. There’s likely to be demand for the next few years, as more millennials and Gen Zers start families and enter the housing market.
However, Blackhurst suggests being mindful of what’s happening locally. For example: “If the three largest businesses in your area closed, you might want to be careful about buying a home,” he says. Prices could fall with less demand, and finding a future buyer might be more challenging if nearby jobs have dissolved. In that case, the overall market trends don’t matter as much as the local situation.
Should I buy a house now or wait?
Consider these factors.
Your income
Your earnings and job stability are a couple of the most important factors for understanding whether it’s a good time to buy a house. “We can talk about markets and interest rates all you want, but at the end of the day, if you’re not sure of your ability to pay the mortgage, that’s a bad time to buy,” says Blackhurst. If you’re worried about a possible layoff, for instance, maybe wait until your situation is more secure.
The first question consider is: Can you make monthly payments on a home at your current income? One of the major factors that determines how much house you can afford is your debt-to-income ratio—your monthly debt payments divided by your monthly income. In general, lenders like to see a ratio between 36%3 to 42%.
You should also consider property taxes and insurance. Keep your expenses, including your monthly principal and interest payments to 36% or less of your household pre-tax income, which is what mortgage lenders tend to want to see. For example, if your pre-tax household income is $7,500 per month, your total monthly housing expenses should be no more than $2,700.
Finally, consider whether you have enough to cover utilities and maintenance costs, which could be higher than what you’re paying on a rental. Account for repairs as well—you never know when your roof might start leaking or your oven stops working. Ideally, you could build an emergency savings of at least $1,000, or 3 to 6 months' worth of monthly expenses to cover those kinds of needs.
Your future life plans
Buying a house could be a profitable long-term investment over renting, but it’s obviously more expensive upfront. You’ve got to pay closing costs, including attorney fees, a home appraisal, title insurance, and other expenses for transferring the property and setting up your mortgage. These can add up to about 2% to 6% of your mortgage.2 If you buy a home for $500,000, expect to pay up to another $30,000 in closing costs. For renters, application fees, agent’s fees, and other charges don’t tend to add up to thousands.
Because of these high costs for buyers, real estate agents often suggest only buying a house if you plan on staying for at least 5 years. If you can’t commit to that, continuing to rent might be a smarter money move.
One exception, Blackhurst notes: if the property is in a hot rental market. He says that in some places with lots of renters, such as near college campuses, people can buy a home and rent it for double their monthly mortgage costs. If you wouldn’t mind being a landlord, it could still pay to buy, even if you’re not sure how long you'll hold on to the property.
Your credit score
To qualify for a mortgage at all, you tend to need a credit score in the 500s, though Blackhurst says the minimum could be higher, depending on your lender. If your credit score is too low, you’d need to wait to improve your credit score if you need to secure a home loan.
The higher your credit score, the better your chances of getting a lower mortgage interest rate, which affects your monthly payment amount. If your score is on the lower end of qualifying, you might wonder whether it’s worth improving before buying. A pro: You could be building equity and later sell to potentially get some of your money back. You could also potentially refinance your mortgage for a lower rate later if you get your credit score up or interest rates fall. If you keep renting, you won’t get your money back when you move.
Another potential pro to buying: It’s possible that home prices will rise in time, so the home could appreciate in value and build equity.
A con to buying a home with a lower credit score: Your interest rate, and therefore your monthly mortgage payments, may be higher. That means you could pay more money for the same house than you would if your credit score were higher.
For more information about ways to deal with high mortgage rates read Viewpoints, 3 ways to deal with high mortgage rates.
Your down payment
Conventional mortgages require a minimum down payment of at least 3% of the home price per Fannie Mae, while other types of mortgages have different minimums. However, a lender could charge a buyer private mortgage insurance (PMI) on a conventional mortgage if the buyer’s down payment is less than 20% of the home’s price. PMI tends to cost between 0.46% and 1.5% of your original loan amount per year.3
Luckily, once you’ve paid off 20% of your home’s worth, you won’t need to continue paying PMI. Making loan payments could get you to that point, but so could your property’s value increasing over time. “Keep in touch with your realtor after you close to keep an eye on your home’s value,” suggests Blackhurst.
Should you wait to buy until you’ve saved more for the down payment? The pros and cons are similar to waiting to buy until you’ve raised your credit score. You could be building equity which could result in getting your house for less than what it could cost you later if you buy now, but your monthly payments might be higher, this time because of PMI. Remember, there are many factors to consider when buying a home.