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.

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

The average interest rate on a 30-year fixed-rate mortgage was 6.91% annual percentage rate (APR) for the week ending Dec. 7, down 23 basis points from the previous week and up 58 basis points from a year ago, according to rates provided to NerdWallet by Zillow. A basis point is one one-hundredth of 1%.

Averages are for the week ending Dec. 7, 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.

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.

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

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.

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.

Ask yourself these questions to explore whether you’re ready to buy a home.

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.

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.

Here are the three main ingredients to evaluate.

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.

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.

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.