Is Now a Good Time to Buy a House? Let’s Break It Down

The illustration shows a $100 bill shaped like a house with a For Sale sign in front.
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Is now a good time to buy a house?

It’s an evergreen question — and it’s a highly personal question. Only you can answer whether or not it makes sense for you to buy a home at any given time.

That said, the realities of unpredictable interest rates and the ever-changing housing market will play a role in your decision. And, right now, those indicators are blinking red.

As of February 2024, consumer confidence is quite low according to Fannie Mae’s Home Purchase Sentiment Index. Only 21% of consumers believe it’s a good time to buy, and 66% believe it’s a good time to sell a home. But do those attitudes accurately reflect the market?

Is Now a Good Time to Buy a House?

The dramatic increase in housing prices we were seeing in 2021 stalled dramatically in 2022, when home prices decreased for nine consecutive months. Prices began to rise again throughout 2023, but at a slower rate than during the pandemic.

Some sellers’ expectations have been slow to adjust.

“In my experience, a lot of sellers are expecting multiple offers for well above the asking price without prepping the home for the market,” said Mara Thompson, a real estate professional based out of Fridrich & Clark Realty in Nashville, Tennessee.

“That was happening in 2021 and the first half of 2022. Homebuyers were bypassing home inspections, paying for closing costs that are typically paid by the sellers and allowing the seller to remain in the home for up to three months free of charge,” Thompson adds. “That fortunately has stopped for the most part.”

On top of that, fixed 30-year mortgage interest rates are hovering around 6.8%.

When it comes to mortgage rates in 2024, Fannie Mae’s forecasts suggest rates will fall between 6.4% and 6.7% — a narrow range that doesn’t necessarily make a future homebuyer brim with excitement.

Ongoing inflation, Federal Reserve policies and impending recession fears make the near future of interest rates difficult to predict.

That said, if you’re set on buying a home soon, you have options. You just need to be prepared to take on that financial burden.

4 Questions to Consider Before You Buy a House

Ultimately, whether you should buy a home right now depends largely on how ready you are and your financial situation more so than market conditions.

Before buying a home — the single largest purchase most people will make — you need to have a solid financial plan in place. Here are some things to consider before making that purchase.

1. How Long Do You Expect to Stay in This Home?

The future isn’t always predictable, life happens after all, but you should have an idea of any major decisions that are in your near future.

Do you expect to get married? Do you plan on having kids in the next five to 10 years? How permanent is your current job situation? Do you want to be in that location long-term?

If any of those situations are in flux, you might want to pause on buying a home right now. That two-bedroom condo might get a little tight once you start having kids. Or the house you thought was a dream could become a financial weight around your neck when your company asks you to transfer to another city.

The best time to buy a house is when your life is fairly stable, both personally and professionally. That doesn’t mean you need to have everything perfectly set. But you should carefully consider the pros of buying the home versus the cons of possibly moving in the short term — and figuring out what to do with your house — because of life changes.

2. How Much of a Down Payment Can You Make?

Traditional wisdom has always said to make a 20% down payment to avoid private mortgage insurance (PMI), which covers the lender in case you stop making payments.

The current median sales price for an existing home in the U.S. is around $384,000. That means to avoid PMI, a buyer would need to make a $76,800 down payment. For most buyers, that will require planning and some aggressive savings before making the purchase.

The more you put down, the less your mortgage will be — meaning lower monthly payments. So you would borrow $307,200 (80%) instead of a higher amount. Most lenders require a minimum down payment of around 3% to 5%, so you have that option if your budget allows for larger monthly payments (more on that later).

First-time homebuyers typically have more options — with lower down payments and credit score minimums. These include:

  • FHA loans: If you qualify, you might consider an FHA loan, insured by the Federal Housing Administration. These loans require just 3.5% down and a credit score minimum of 580. Or if you’re able to put 10% down, you’ll only need a 500 credit score.
  • VA loans: Veterans Affairs loans are an option for qualified military members and veterans. They don’t require a down payment and usually come with lower interest rates. They might require a funding fee that can be rolled into the overall mortgage.
  • USDA loans: If you’re looking to live in a rural area, you may qualify for a loan from the U.S. Department of Agriculture. These loans require no down payment. You’ll need to live in a qualifying area, though.

Remember, the more you can manage to put down on the front end, the less debt you’ll carry over the course of your mortgage.

3. What About Your Credit Score?

Make sure you know your credit score well before you begin the process of buying a home. That one little number will greatly affect your loan options when it comes time to sign the mortgage.

The standard magic number required for conventional loans is 620. Anything between 650 and 699 is considered “fair.” Between 700 and 749 is considered “good.” And anything 750+ means you have “excellent” credit. The better your credit score, the better your loan options and interest rates will be.

Non-conventional loans will require higher credit scores. One example is a jumbo loan, which typically requires a credit score of around 700. There are ways to buy a house with a lower credit score though.

If you’re looking at buying a home in the near future, it’s incredibly important to make sure you understand where your credit score is and how you can improve it over time.

There are plenty of ways you can actively work on improving your credit score — everything from making on-time payments to applying for credit selectively and even asking for a credit limit increase but not using it.

4. Is Your Budget Ready?

The average mortgage payment in America is $2,188. That number can vary, of course, based on where you live, how long your mortgage is, your down payment and interest rate.

But if only that was all you were expected to pay. It’s easy to forget all the other fees that get tacked on to mortgage payments. You’ve got taxes, insurance, maybe HOA fees and mortgage insurance — and then there’s all the ongoing maintenance and other monthly expenses that come with owning a home.

How to See If You Can Afford a House

Let’s use an example. We’ll say you live in Nashville, Tennessee — a prospering real estate market but not one that is out of control. As of early 2023, the average cost of a home in Nashville was $461,000.

We’ll also say you live in a homeowners association — and, fortunately enough for you, Tennessee has the fifth-lowest HOA cost with a median of $150 per month.

We’ll assume you have good credit (good enough for a decent PMI rate of around .99%) and can get a 6.5% interest rate.

We’ll also assume that you can manage a 10% down payment on a 30-year mortgage.

This donut graphic visually shows you how much you need to earn in a month to afford to buy a home in Nashville, Tennessee, based on the 28% rule and some assumptions. The 28% rule says that no more than 28% of your gross monthly income should pay for your housing expenses. The assumptions for the graphic are the average cost of a home in Nashville is $461,000, a buyer puts down a 10% down payment, so your mortgage is $400,000. Monthly taxes, property insurance, private mortgage insurance, the HOA fee, principal, and interest total $3,468. You will need to earn $12,386 a month to afford a home.

Let’s run the numbers.

  • The mortgage payment: A $461,000 purchase price with a 10% down payment ($46,100) brings you to a $414,900 mortgage. Including principal and interest, that comes to a $2,622 monthly payment. But, that’s just the beginning.
  • The taxes: Your Nashville ZIP code — and its corresponding property tax — will cost you about $288 per month.
  • The insurance: Homeowners insurance runs about $66 per month.
  • The HOA fees: We’ll tack on the median Tennessee HOA monthly payment of $150.
  • The PMI: Then there’s PMI, which you’ll need to pay since you’re making a down payment of less than 20%. Your PMI rate of 0.99% comes to a $4,104 annual premium, or $342 per month. Keep in mind that once you reach that 20% equity number, you’ll no longer need to make this payment. If you made this standard payment every month, never paying extra, that would take just under eight years.

So, all said, you’re actually paying $3,468 a month for your $414,900 mortgage — $846 of which is simply added on after principal and interest.

The question is, prospective Nashville homeowner, do you have $3,468 of flexibility in your current budget? (Keep in mind that you’ll have to pay for maintenance and repairs on top of that.)

If not, right now is probably not the best time to buy a house.

“Unfortunately the Nashville area and surrounding counties no longer support affordable housing with the amount of people and companies relocating to this area,” Thompson says. “Home appreciation has risen so much that it is very difficult for first-time buyers to compete. A lot of first-time buyers have been pushed out of the market with the higher rates.”

It goes without saying, although we feel the need to mention it, that your numbers could vary greatly where you live. A home in New York or San Francisco will cost much more than one in Nashville, while a home in the rural Midwest will cost much less. (A Midwestern state might even pay you to move there.) Property taxes and HOA fees can also vary greatly based on where you live.

The point of this exercise is to show how you need to know exactly what you are getting into before jumping into a massive purchase like a home.

But What About Interest Rates?

All that to say what is true now might not be true five years from now, or even next year. In 2024, interest rates on a 30-year mortgage are averaging about 6.8%. In 2015, they hovered between 3% and 4%. And at the beginning of 2021, they were as low as 2.7%.

If you’re set on buying a house right now, even with the higher interest rates, you can always refinance once rates drop — and history tells us they most certainly will drop.

For our previous example, you would pay around $800 more per month with a 6.8% interest rate over a 3.8% rate. That’s a huge difference, and it’s something to keep in mind as you’re determining if now’s the right time.

“Interest rates had been abnormally low for many years. History shows us that they are now at a level that’s more normal,” Thompson says. “With the stock market still being volatile and inflation not under control, I do not see them changing much. If they could stabilize around 5%, that would be great.”

So… Is It a Good Time to Buy a House?

Based on what many experts are saying, as well as how the general public feels about the housing market, it’s probably not the best time to buy. We’re definitely in a seller’s market right now.

But as you’ve seen, a lot of variables are at play in how you can make that decision. Most buyers right now aren’t comfortable as home values and interest rates are so high. But your situation may be different.

Home prices are always changing. Interest rates are always adjusting. What we’ll see this time next year could be drastically different from what we’re seeing now.

Thompson adds, “The best time to buy a house is when you see one that you like and it fits most of your criteria. I do not recommend that people wait too long to decide since there are likely to be more buyers for that property due to the lack of inventory.

“The spring market has always been the strongest because typically more inventory opens up as the trees leaf out, the grass is green for better photos and families begin to consider moving due to school zones and so on.”

Know your budget. Know your credit score. Understand how much of a down payment you can make and the impact it will have on your monthly payment. And simply be realistic about your current life situation and how that could impact where you live in the near future.

Robert Bruce is a senior staff writer at The Penny Hoarder covering earning, saving and managing money. He has written about personal finance for more than a decade.