Should I buy a house now or wait?
Buy now or wait? That’s the question prospective homeowners grapple with in today’s hot housing market. Many potential buyers tend to be on the “wait” side of this equation. In fact, about 75 percent of consumers believe now is a bad time to buy a home Fannie Mae’s Homebuyer Sentiment Indexa monthly survey that gauges consumers’ thoughts on the real estate market.
There is no question that it is currently a seller’s market. But buying now may still turn out to be a wise decision in the long run. Deciding which option is best for you comes down to finances. Here are some key considerations to help you decide on the best approach.
Should I buy a house now?
If you buy now, you can start building equity right away. This applies regardless of the direction in which the real estate market is currently trending. However, an important point for today’s market is that buying now means avoiding more Mortgage rate increases later.
“When a buyer finds a property they want to call home, they shouldn’t hesitate,” says Stacey Froelich, a real estate agent at Compass in New York City. “You can’t time the market, and owning a home should be a long-term investment. Even if prices drop slightly a year from now, mortgage rates will most likely be significantly higher. In the end, it costs a buyer more every month if he finances it.”
Increasing rates can mean serious problems for your monthly budget. Consider this calculation by Heather Brown, an agent at RE/MAX Austin Skyline in Texas. “Based on a $450,000 loan amount, the difference between a 4 percent interest rate and a 5 percent interest rate equates to about a 13 percent higher payment,” she says. “Not only that, but the interest paid over the life of the loan is higher, so the payout is actually higher.”
In general, if you can answer yes to these three questions, now is the time to buy.
1. Do you have excellent credit?
Every time you borrow money, start by checking your credit report and credit history. The best mortgage deals will be available to those with credit scores of 740 and above. If you’ve proven you’re a low-risk borrower and have a history of making payments on time, queue up for the lowest mortgage rates a lender is offering.
2. Have you saved enough for a down payment?
Have you managed not only to pay your bills on time, but also to save a lot of money? If you’re sitting on a sizable chunk of cash that can take a toll on your down payment, now is a good time to buy. However, make sure you have enough left over. Lenders feel more comfortable lending you money when you have extra cash reserves that provide a cushion in case something unexpected happens.
3. Are you planning to stay in the home for a while?
In addition to the purchase price, there are closing costs when buying a home, which can range from 2 to 6 percent of the property price. So, to justify the transaction costs, it’s wise to be reasonably confident that you won’t be moving again anytime soon – or that you’re financially stable enough to keep and rent out the property.
Should I wait until prices go down to buy a house?
If you want to be a homeowner but are waiting for prices to cool, here’s the challenge: Home prices tend not to fall (with the notable exception of the 2008 housing bubble). The good news, however, is that house prices can’t skyrocket forever either. Here are two instances where it might make more sense to wait and see the market:
1. When inventory is increasing in your area
If there is no shortage of homes for sale in the market you are searching in, waiting can save you some money. “It is likely that prices will level off or fall slightly now that interest rates are rising,” says Froelich.
But the wait can be a losing game in places where living space is severely limited. “But only if inventories increase,” Froelich continues. “Inventory levels are at an all-time low and without an increase in supply, it’s hard to predict how prices will go down.”
Brown agrees, “We just don’t have enough houses. Tight budget buyers who wait will eventually be locked out of the Austin market.”
2. When your personal finances are less than outstanding
The number one reason to wait is when your current financial situation is not ideal. For example, if you’re anticipating a sizable commission check, inheritance, or other windfall that would make a big difference in your down payment, it makes sense to wait for it to arrive. And when your credit score needs some love, waiting is smart too. Take some time to pay off your credit cards and improve your credit score so you qualify for better credit terms.
Research your local market carefully
The decision of whether to buy a home now or wait ultimately comes down to where you want to call your home. Regardless of national headlines, real estate is hyper-localized and can vary wildly from market to market.
Consider this data from Redfin: In In Naperville, Illinois, a Chicago suburb, the median selling price of a home has risen a relatively modest 8.2 percent over the past year, and the typical home stays on the market for 42 days. But in Lakewood, Coloa Denver suburb, home prices are up a staggering 29.1 percent in the past year, and the typical home is on the market for just four days.
Work with an experienced agent
In today’s market, finding a real estate agent who can help guide the process is more important than ever. “The right broker knows exactly what inventory may be coming to market, or in a particular situation with a seller or building,” says Rachel Glazer, a broker at Compass in New York City.
Trying to buy a home on a seller’s market may feel overwhelming, but waiting too long can also be challenging. Check your finances in detail and feel the pulse of the city you want to live in. Then speak to an experienced local real estate agent to determine whether to buy now or wait until the market is a little friendlier to your bank account.