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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?
Current economic indicators and the state of your local housing market give important context for your decision. 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
Mortgage rates began climbing in January, with the 30-year fixed rate averaging about 5.6% in July, up about 2.5 percentage points from the beginning of the year, according to rates provided to NerdWallet by Zillow.
Higher rates shrink buying power because they make home loans more expensive.
For example: The monthly mortgage payment for a $400,000 house with a 20% down payment, including estimated property taxes and home insurance, would be $1,852 with a 3% mortgage rate. With a 5.6% rate, the monthly payment would be $2,340 — $488 higher.
Regardless of where average rates are, it's important to shop around for the best rate available, and then make sure you can afford the monthly mortgage payment. A home affordability calculator can help you crunch the numbers.
Competition among buyers
Demand for homes is high, but inventory is low, making this a seller's market across the country. A seller's market happens when there are more prospective buyers than homes for sale.
The stiff competition for homes means fewer choices, higher prices and quicker sales. Most homes sold in recent months were on the market for less than three weeks, according to data from the National Association of Realtors.
However, there is a nugget of good news for buyers: The number of pre-owned homes for sale increased to 1.26 million in June, according to the NAR. At the current sales pace, it would take three months for all of these properties to sell, up from 2.6 months during the previous month and 2.5 months in June 2021.
Generally, real estate agents consider it a balanced market, with roughly equal numbers of buyers and for-sale homes, when it would take about six months for all the available pre-owned homes to sell. So sellers still have the advantage today, but they can't call the shots as much as they could in the spring.
As a result, competition among buyers isn't as frenzied as it was earlier this year. On average, homes listed for sale received an average of 3.4 offers in June, down from 4.2 offers the previous month and 4.4 offers in June 2021, according to a survey of real estate agents by the NAR.
Higher home prices
Year-over-year home prices soared in the first half of 2022. The national median price for existing homes sold in June hit a record high of $416,000, up 13.4% from June 2021, according to the NAR. Existing homes are properties that were occupied before they went on the market.
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.
"Homes priced right are selling very quickly, but homes priced too high are deterring prospective buyers," NAR Chief Economist Lawrence Yun said in a July press release.
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 a number of 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:
You'll need money for a down payment and mortgage closing costs, and 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.
» MORE: How to save money for a house
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 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 730, according to ICE Mortgage Technology.
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 39%, according to ICE Mortgage Technology.