Deciding on the right time to buy a house is a big decision. Especially if it’s your first time. It’s a decision that can be difficult to make on your own, so you should consider talking to a professional before making a final call. Before you reach out to a professional, there are a few things you can consider upfront.
When deciding whether now is a bad time to buy a house, there are three main things you’ll want to consider: 1) current housing market conditions, 2) your home-buying goals, and 3) your personal financial situation.
The Market
The market isn't the only factor when deciding whether to buy a house, but it might be the most talked about.
"The market" can be a complex thing to break down to its individual parts. An approachable way to think about it is as a buyer’s or seller’s market - an easy way to understand things through the lens of supply and demand economics. Generally, if we’re in a buyer’s market, it could be a better time to buy, and vice versa for a seller’s market.
Is it a buyer's market or a seller's market?
A buyer’s market occurs when there are more homes for sale than there are buyers, meaning there is more supply than demand. This typically results in lower prices and more negotiating power for buyers. A seller’s market occurs when there are more buyers than there are homes for sale, meaning a higher demand with less supply. This will typically result in higher prices and less negotiating power for buyers.
To determine the state of the housing market, you can consider the following factors:
- Inventory: If there is a high number of homes for sale and they are staying on the market for a long time, it is likely a buyer’s market.
- Prices: If home prices are decreasing or remaining stagnant, it is a sign that it is a buyer’s market.
- Days on market: If homes take longer to sell than usual, it could indicate a buyer’s market.
- Absorption rate: This is the number of homes sold over a period compared to the number of homes for sale over that same time period, expressed as a percentage. A lower rate indicates more supply than demand, which could mean a buyer’s market.
Example: In the past two months, there were 15 homes sold in a given area. In that same area, there were 50 homes for sale. The absorption rate for that area is 15/50 = 0.3 or 30%.
If we take all the above as general signs of a buyer’s market, the opposite of each would suggest a seller’s market. It is important to note that these factors can vary widely depending on the location you’re interested in, the type of property you want and other factors. It’s always best to consult with a local real estate agent or a financial advisor to get a better understanding of local market conditions. Sometimes this will confirm what you thought, sometimes it gives a different read.
So, say we’ve determined it’s currently a seller’s market. Does that mean that now is a bad time to buy a house?
Can a buyer still buy in a seller's market?
Whether a buyer should buy in a seller’s market depends on their individual situation and goals. Here are a few things to consider:
- Prices: In a seller’s market, prices tend to be higher and there is usually less room for negotiation. This can make it more difficult for buyers to find a home that fits their budget.
- Competition: In a seller’s market, there are often multiple buyers interested in the same property, which can lead to bidding wars and the need to make a quick decision.
- Closing time: In a seller’s market, homes tend to sell quickly, so buyers may have to move quickly to close a deal.
- Home conditions: In a seller’s market, buyers may have less time to inspect the property and may have to overlook certain issues.
On the other hand, a seller's market offers some unique advantages:
- Appreciation: In a seller’s market, prices are generally rising, which can lead to more appreciation over time, especially if you buy early in a seller’s market.
- Financing: In a seller’s market, lenders are more willing to provide financing, making it easier to obtain a mortgage.
- Closing time: Buyers in a seller’s market may be able to close on a home more quickly.
Just because it’s a seller’s market doesn’t mean it’s a bad time to buy. It’s important to weigh the pros and cons and consider how they align with what you want and need.
Your home-buying goals
Determining your home-buying goals can help you make a more informed decision about when and how to buy a home.
Some things to consider include:
- Timing: Are you looking to buy a home immediately or soon? Could you wait?
- Type of home: Are you looking for a single-family home, a townhouse, or a condo? Do you prefer new construction or an older home?
- Location: Are you looking for a home in a specific area or neighborhood? What are the most important factors to you in terms of location? Area schools? Proximity to public transportation? Neighborhood amenities?
- Size and layout: What size home do you need? How many bedrooms and bathrooms do you want? Do you need an attached garage? Is an open floor plan a must-have?
- Budget: How much can you afford to spend on a home? What monthly mortgage payment would you be comfortable with?
- Future plans: Are you planning on staying in the home long-term or do you see yourself selling it in a couple of years?
Once you have a clear understanding of your goals, you can start to research properties that meet your criteria and reach out to a REALTOR®. Though they will probably ask you to get a pre-approval to have a good understanding of your financial situation.
Your financial situation
Your financial situation overall and that for buying a house are related, but different.
When judging your financial situation for buying a house, there are several things you should consider:
- Income: Your income is the most important factor when determining how much you can afford to spend on a home. Lenders typically look for a stable, consistent income.
- Credit score: Your credit score is a measure of your creditworthiness. Lenders use it to make decisions on your loan eligibility and terms.
- Debt-to-income ratio: This is the ratio of your monthly debt payments to your monthly income. Lenders typically prefer a total debt-to-income ratio of 43% or lower. This includes any projected mortgage payments.
- Down payment: Most loan programs require a minimum down payment. The amount of money you can put down may affect your mortgage terms and interest rate.
- Savings: Having a solid savings cushion may help you handle unexpected expenses that could arise during the home-buying process or when you move in.
- Future financial plans: You should always consider how buying a home will impact your future financial plans, such as saving for retirement or paying for your children’s education.
Dick Jeffress
Jimmy Mouser : Apr 13, 2023 12:05:31 PM
Dick Jeffress : Apr 14, 2023 4:36:42 PM
