Is It a Good Time to Buy a House?

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 to buy a house also depends on your financial situation, life goals and readiness to become a homeowner.

» MORE: Should I buy a house? How to tell if you're ready

Here's what to consider.

The market outlook for home buyers

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

Higher year-over-year mortgage rates

The average interest rate on a 30-year fixed-rate mortgage was 7.14% annual percentage rate (APR) for the week ending Nov. 30, down 12 basis points from the previous week and up 62 basis points from a year ago, according to rates provided to NerdWallet by Zillow. A basis point is one one-hundredth of 1%.

Average weekly mortgage rates

Averages are for the week ending Nov. 30, 2023, according to rates provided to NerdWallet by Zillow.

After hovering at historic lows, mortgage rates began climbing last year, and the 30-year fixed-rate mortgage bounced between 6% and 7% for most of 2023. By October, lenders began offering loans above 8% for the first time since 2000. But in the past three weeks, the 30-year rate has settled down to an average of 7.37%.

Since March 2022, the Federal Reserve has raised a short-term interest rate 11 times — up a total of 5.25 percentage points — to control inflation. The short-term interest rate the Fed controls also influences mortgage rates. The Fed didn’t raise rates at its most recent meeting, ending on Nov. 1. For home buyers, that’s better news than another increase, but it doesn’t provide the same relief as a rate cut might.

» MORE: The Fed pauses rate hikes again; no relief for housing market

Higher rates shrink buying power because they make home loans more expensive. For example, the monthly payment for a $350,000 house with a 20% down payment would be $1,679 with a 6% mortgage rate on a 30-year mortgage, not including home insurance and property taxes. With a 7.5% rate, the monthly payment would be $1,958 — $279 higher.

You can't influence average rates, so focus on the things you can control:

• Shop around for the best deal. Especially given today's higher rates, buyers can save $600 to $1,200 per year by applying for loans from multiple mortgage lenders, according to a February 2023 study by Freddie Mac, the government-sponsored entity that buys conforming loans from mortgage lenders.

• Make sure you can afford the monthly mortgage payment. A home affordability calculator can help you crunch the numbers.

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

» MORE: NerdWallet's mortgage interest rates forecast

Home supply is still limited

A shortage of homes for sale continues to make this a tough market for buyers.

In October, there was a 3.6-month supply of homes on the market nationwide, according to the National Association of Realtors (NAR), meaning it would take a little over three months at the current pace for all the properties to sell. Supply is up slightly from recent months, but still well below favorable conditions for buyers. In a balanced market with plenty of buyers and properties for sale, the supply would last five to six months.

The number of existing-home sales dipped by 4.1% from September to October. However, compared with October 2022, the number of sales fell by 14.6% — a dramatic drop that indicates just how challenging the homebuying environment has become since last year.

"Prospective home buyers experienced another difficult month due to the persistent lack of housing inventory and the highest mortgage rates in a generation," NAR chief economist Lawrence Yun said in a Nov. 21 news release.

» MORE: Have seasonal housing market trends returned?

Year-over-year home prices edge up

It’s a harsh one-two punch: Not only have mortgage rates gone up, but so have home prices. Neither one is favorable news for buyers, but combined, they significantly reduce shoppers’ buying power.

The national median price for existing homes sold in October was $391,800, up 3.4% from October 2022, according to the NAR.

All four U.S. regions — Midwest, Northeast, South and West — saw year-over-year price increases in October. Here's a regional look at median prices and year-over-year price changes:

• Midwest: $285,100, up 4.2%.

• Northeast: $439,200, up 7.5%.

• South: $357,700, up 3.5%.

• West: $602,200, up 2.3%.

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.

» MORE: What to expect when buying a house this year

Competition remains steady

Despite rising home prices, demand still outpaces supply. That means buyers should expect competition when making an offer on a home.

In October, 28% of homes sold for more than asking price, according to the NAR Realtors Confidence Index, a survey of its members, up from 24% one year ago.

Homes listed for sale in October received an average of 2.5 offers, remaining mostly unchanged from last month and the year prior. The number of cash offers has also remained steady: More than 1 in 4 sales (29%) in October were all-cash transactions.

However, houses are staying on the market a little longer now compared to late summer. Of homes sold in October, 66% of properties were sold in less than one month, down from 69% in September.

» MORE: Why a new-construction home may cost less than you expect

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.

» MORE: Avoid capital gains on real estate

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.

» MORE: What happens if you lose your job before closing on a mortgage?

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 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.

» MORE: How to save money for a house

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 for borrowers 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 to purchase homes in the past 30 days was 733, according to mortgage data provider ICE Mortgage Technology.

» MORE: The credit score needed to buy a house

Debt

Lenders look at your debt-to-income ratio (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 past 30 days was 40%, according to ICE Mortgage Technology.