(6 minute read) — You’re looking for a home and you want to pick the best time to buy a house. You run a search. To your surprise, you’re met with a tornado of jargon about “motivated buyers,” “inventory levels,” “negotiating power,” and everything in between.
If you just want simple answers, this writeup is for you. Here’s an overview of the information you need to answer for yourself: “when is the best time for me to buy a house?”
What market conditions are best?
Current market conditions play a big role in choosing the best time to buy a house. They include things like interest rates, the total number of houses for sale ( that’s what “inventory” really means), and even the season!
How do interest rates affect timing?
The current interest rate is one of the most important factors when deciding the best time to buy (or refinance) a home. It has a big effect on your short-term finances (via your monthly payments) and your long-term finances (via interest payments over time). Since you’ll be paying your loan for years or even decades, every decrease in interest will save you a lot in the long-term.
When rates are low, you have a better chance to afford a higher-priced home. When rates are high, however, it will be tougher to afford even lower-priced homes. Try to buy when interest rates are low.
Interest rates remain historically low right now. As of late April, Freddie Mac recommended that interested buyers and current owners “take advantage of the very low rate environment.” In fact, they remain about as good as they’ve been in decades; see a year-by-year comparison here.
What is a “buyer’s market” versus a “seller’s market”?
While this overly simple explanation won’t apply in all cases, it will give you a feel for how it generally works.
- Buyer’s market: high supply + low demand = better prices.
It’s a buyer’s market when there are more homes for sale than there are buyers. In a buyer’s market, a seller is likely to lower their asking price to attract potential buyers. The seller is also more likely to negotiate the price or make other concessions to sell the home. If your finances are in good shape, this is a great time to buy. To find out if it’s a buyer’s market right now, search the term online and check the latest news articles.
- Seller’s market: low supply + high demand = higher prices.
It’s a seller’s market when there are fewer homes for sale than there are buyers. In a seller’s market, sellers can demand a higher price for their homes. Buyers have to compete with each other for a scarce resource. If you’re a homebuyer in a seller’s market, stay ready! You will likely need to act decisively, as homes are likely to disappear from the market fast.
(Case in point: In early April 2021, the Portland housing market was overwhelmingly a seller’s market, with sky-high demand but low supply. In this environment, houses regularly sold for more than $100,000 over the asking price. If you’re looking for a time to buy, consider holding off: prices and competition are expected to keep climbing. )
Note: A seller’s market might still be a good time to buy a home. As we’ll cover, other variables affect the right time to buy a home. For example, historically low interest rates can help buyers afford a home even in a seller’s market.
What’s the best season to buy a house?
The simple answer is this: there is no overwhelming “best season” to buy. Spring and summer are the common buying seasons, but each season has its own advantages and disadvantages.
“Don’t lose sleep trying to plan your home purchase for a specific season.”
It is often unclear whether a specific season’s advantages outweigh its disadvantages. For example, if you’re shopping for a home in the spring or summer, you’ll likely have a bigger selection of homes to choose from. That means you’re more likely to find a home with all the features on your wish list. However, you’re also going to have more buyers to compete against during these seasons. That means it will probably be harder to actually close on the home.
Further, there are advantages to buying a home during the fall or winter. There will be fewer buyers to compete against, lower prices compared to other times of year, and you might find a seller willing to negotiate more if they failed to sell during peak season. However, you’ll have fewer pickings, your home visits might be unpleasant given the weather, and the overall house hunting might be more challenging.
The bottom line: You can drive yourself mad diving into the details. Some even claim they’ve found the best week of the year to buy a home. Generally speaking, it’s just not that practical in most cases. And in the grand scheme, the season in which you buy your home is less important than other factors such as interest rates and housing inventory.
In other words, once you understand what’s most important to you, you can legitimately turn any season into the best time to buy a house.
When am I financially ready to buy a house?
Market conditions are just one part of the equation. Before you can buy a house, your personal finances need to be ready too. How do you know when you’re financially ready to buy a home? Here’s an overview.
- You’ve saved for a down payment. Although some buyers will be able to buy a home with no money down, it’s always good to save for a down payment. It helps ensure you’re ready to cover sometimes overlooked costs like closing costs, title fees, and others. Plus, even a small down payment helps reduce your monthly mortgage payment and builds equity in your home. Lastly, it’s just a good habit to build. A consistent savings habit is critical as a homeowner. Since you’ll be responsible for all home repairs and maintenance, for example, a healthy savings fund will help you avoid stress later on.
- You have a reliable source of income. You have a reliable source of income. Like a history of good credit, a reliable source of income can earn you more generous loan terms (lower rates, for example). It helps the loan underwriters make the case that you’re less risky because you have the means to pay back the loan.Keep in mind: if a recession or economic downtown might put your income at risk, consider waiting to buy a home. This limits your own financial risk, protecting you from owing a large sum of money without being able to pay it.
- You have little debt (or relatively high income). Having less debt is ideal. The less debt you have, the higher the chances you get approved for a home loan. That said, you don’t need to be debt-free to buy a home. For example, many first-time buyers also have student loans and credit cards.
Having a higher income works similarly: the higher your income, the better your chances of approval and generous terms. How does that work? High income lowers your “debt-to-income (DTI) ratio,” one of the key figures loan providers use to build their loan offer to you. It’s another way you show your lender that you’re less risky.
Is NOW the best time to buy a house?
If the market is strong and you’re financially ready, there’s no reason to wait to buy a home. If you’re not sure, consider the relevant information described above. Check in with yourself and ask your family how they feel about it. And don’t forget the first step: getting your finances ready so you can take advantage of the next best homebuying opportunity.
And remember: it doesn’t hurt to speak with a thoughtful, trustworthy person who knows real estate. Unitus Mortgage seeks to offer just that: responsive, empathetic people who will help you gauge your personal goals, then work to make them real.
In 2019, Unitus also began a partnership with the HomeAdvantage® Program to help homebuyers simplify the process and save money regardless of market conditions. Homebuyers are matched with a pre-screened, certified HomeAdvantage® real estate agent knowledgeable in the local market. Unitus members who use the program earn an average of $1,500 cash back. Click here to learn more or get started.
About the author: Brad Goodenough
Brad joined Unitus Mortgage in November of 2013. He began as a dedicated mortgage originator and has developed into a results-oriented sales manager focused on maintaining a high level of service and integrity across the Unitus Mortgage team.