Is It a Good Time to Buy a House?

Consider market conditions as well as your personal and financial readiness.
Barbara Marquand
By Barbara Marquand 
Edited by Alice Holbrook Reviewed by Michael Soon Lee

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If you're wondering whether it's a good time to buy a house, ask this instead: Is it a good time in my life to buy a house?

Housing market trends give important context. But whether this is a good time for you to buy a house also depends on your financial situation, life goals and readiness to become a homeowner.

Here's what to consider.

The market outlook for home buyers

These are some of the factors affecting buyers in today's market.

Higher mortgage rates

After hovering at historic lows, mortgage rates began climbing last year, with the 30-year fixed-rate mortgage topping 7% in the fall. Since then, rates have settled a bit, with the 30-year fixed averaging 6.08% in the week ending Jan. 19, according to rates provided to NerdWallet by Zillow.

Since March 2022, the Federal Reserve has raised the federal funds rate — the short-term rate banks pay for borrowing money from one another — by 4.25 percentage points to control inflation. Rates could go up again if the Fed delivers more rate hikes in 2023. The Federal Open Market Committee will next meet Jan. 31-Feb. 1.

Higher rates shrink buying power because they make home loans more expensive.

For example, the monthly payment for a $400,000 house with a 20% down payment would be $1,437 with a 3.5% mortgage rate, not including home insurance and property taxes. With a 6% rate, the monthly payment would be $1,919 — $482 higher.

Regardless of average rates, it's important to shop around for the best rate and then make sure you can afford the monthly mortgage payment. A home affordability calculator can help you crunch the numbers.

After you're approved for a home loan, consider locking in the mortgage rate until the loan closes to protect against further rate increases.

Home supply still limited

In December, there was a 2.9-month supply of homes on the market nationwide, according to the National Association of Realtors, or NAR, meaning it would take a little under three months at the current pace for all the properties to sell. That was up from 1.7 months from the prior year but was well under the five- to six-month supply that's generally considered a balanced market with plenty of buyers and properties for sale.

But competition isn't as wild as it was last year. On average, sellers are fielding fewer offers, and a smaller share of homes are selling above list price. Homes listed for sale in December received an average of 2.2 offers, compared with 3.8 offers a year ago, according to an NAR survey of its members. Of homes sold in December, 16% sold above list price, down from 23% the prior month and 44% in December 2021, according to the NAR.

Homes are staying on the market a bit longer. Of homes sold in December, 57% were on the market for less than a month — compared with 61% in November and 79% a year ago, the NAR reports.

Home prices flattening

The national median price for existing homes sold in December was $366,900, according to the NAR. That was down about 1% from the prior month and 11% from June, when the median price hit a record high of $413,800. Existing homes are those that were owned and occupied before going on the market.

A price drop from the peak homebuying season in the spring and early summer to the fall and winter is normal. What's more telling is that the year-over-year price gains have slowed. The median price in December was up just 2.3% from a year ago, compared with double-digit year-over-year gains in the spring.

“Home prices nationwide are still positive, though mildly,” NAR chief economist Lawrence Yun said in a press release. “Markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year.”

Here's a breakdown of year-over-year price increases in December by region, from highest to lowest, according to the NAR:

  • South: 3.5%.

  • Midwest: 2.9%.

  • Northeast: 1.6%.

  • West: less than 0.1%.

As a buyer, lean on your real estate agent to understand home values in your area so you can make a competitive offer without overpaying.

Your readiness to buy a home

Ask yourself these questions to explore whether you're ready to buy a home.

Prepared to put down roots?

Think about your life goals, relationships and interests. How long can you see yourself living in this location?

Ideally, you'd want to remain in the home long enough for rising property values and your equity to exceed the costs of buying and selling, including real estate commissions and mortgage closing costs. That will typically take several years.

You could also be subject to capital gains taxes if the home appreciates in value and you sell it after less than two years.

How's your job security?

A mortgage is a big commitment and can become a stressful burden after a job loss, so it's not a good time to buy a home if you think you'll get laid off.

Wait until your employment is stable before thinking about buying a house.

Are you financially prepared?

Here are the three main ingredients to evaluate:

Savings

You'll need money for a down payment and mortgage closing costs as well as for moving and other expenses after you buy the home. The down payment requirements vary by the type of mortgage and the lender. The more you put down, the lower your monthly mortgage payment.

The typical down payment for first-time buyers is 6% and for repeat buyers is 17%, according to an NAR survey of home buyers who purchased a primary residence between July 2021 and June 2022.

Credit

Lenders generally offer the best mortgage rates and terms to borrowers with credit scores of 740 and above, although you can qualify for a mortgage with a score in the 600s. The options are much slimmer and loan costs can be higher with a score in the 500s.

If your credit is marginal, it might make sense to postpone buying a house and use the time to work on building your credit.

The average FICO credit score for closed mortgage loans in the last 30 days was 728, according to ICE Mortgage Technology.

Debt

Lenders look at your debt-to-income ratio, or DTI, to help determine whether you qualify for a mortgage. Your DTI is the percentage of your monthly gross income that goes toward monthly debt payments, including housing costs, as well as car, student loan, credit card and other debt obligations. Lenders like to see a DTI under 36%, although it's possible to qualify with a higher ratio. The lower your DTI, the better your chances of qualifying for a mortgage and getting offered the lowest available rate.

The average DTI for purchase mortgages in the last 30 days was 40%, according to ICE Mortgage Technology.

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