When it comes time to ask yourself, “when is the best time to buy a house?” there are a number of different variables that could influence your decision. We understand that trying to make sense of what these variables mean for your situation can feel overwhelming… but no need to stress. In addition to our talented and experienced team of loan officers being ready to answer any and all of your home finance questions, we’ve also prepared this handy article to help you understand how timelines can play an important role in your home purchase.
Short-Term: The Annual Housing Market Cycle
When you look at enough housing data, you recognize a few common patterns emerge. Certain conditions in the real estate market seem to ebb and flow with the seasons, which means that in some cases, house-hunting may be as simple as choosing the right months to meet your preferred homebuying conditions and needs.
The Lowest Prices
Historically, winter is typically one the most affordable times out of the year to purchase a home. The reason is as simple as supply and demand—most people pause their listings for the holiday season (i.e. Thanksgiving to New Year) because they assume there will be fewer buyers out shopping. As a result, this tends to indicate that the sellers who are still on the market are typically there for a reason—and oftentimes that reason is because they want to sell ASAP. It’s for this reason that you can usually expect a lower price and maybe even a few extra perks (like having your home warranty or your closing costs covered).
The tradeoff here is fewer choices for a potentially better price.
The Widest Selection
Spring is when the housing market typically heats up. If you’re looking to sell, it’s a great time to put a house on the market because not only do homes tend to look better in the spring compared to the winter, but the bulk of buyers are also waking up from a self-imposed house-shopping hibernation.
As a buyer, that means your tradeoff here is: substantially more choices, but substantially more competition. You could be paying a higher price to lock down the home versus other house-hunters—it’s not uncommon for bidding wars to take place in the spring.
The Happy Medium
While the start of summer is still a busy buying season, the goldilocks, “just-right” option seems to occur between late summer and fall. Starting around late August, prices historically come down—by then, sellers are beginning to feel some extra motivation to sell.
This extends into the Fall, when prices generally tend to drop even further. There are several reasons for this, but the two biggest reasons are typically:
Families that were looking to move before the school year started will typically hit pause until next spring—meaning there are fewer buyers out there to compete with.
Sellers who were looking to sell their home before the end of the year for a tax write-off are running out of time—meaning sellers are willing to cut their prices to make it happen.
Summed up, between late August and October is the prime time to enjoy the best of both worlds: more options than winter, and lower prices than spring.
Long-Term: The “Big Picture” Conditions
Zooming out to look at homebuying outside of the more typical annual buying cycle, and the variables become a little more nuanced. For example. What’s the value of building home equity? How do you navigate interest rates? Is it worth renting until you find a deal? These aren’t questions with clear yes-or-no answers; you’ll need to consider the variables yourself.
The Housing Market
The Housing Market operates just like any other consumer product market, except instead of the product sitting on a store shelf, it’s buildings—townhouses, condos, studio flats, suburban homes, or even 2nd homes such as rental or vacation homes. There are numerous factors that can affect the immediate, community-level housing market, as well as the national housing market.
Supply and demand is perhaps the most important factor to know. If there are a lot of homes for sale (more homes than people want to buy), then you are in a buyer’s market and prices will be lower. If there are more buyers than there are homes for sale, you are in a seller’s market, and prices will be higher.
New construction is when there are new homes being constructed—this can ultimately add to the housing market’s supply, which helps satisfy demand.
A strong economy and wage growth often lead to more demand, as people feel more secure economically and are ultimately in a better position to purchase a house. Alternatively, a weakening economy with job losses or declining wages tends to have the opposite effect.
But, one factor that we can’t overlook is…
The Mortgage Rate Environment
There are several different options when it comes time to buy your house… but they’re not all the same.
Cash offers might seem like a strong option, but they’re not without their own costs. If you buy a house with cash outright, you’re likely depleting a sizable chunk of your savings—savings that you could need if life throws you a curveball at some point in the future.
Alternatively, a mortgage may provide more breathing room thanks to the fact that it may keep much of your savings intact. And it’s for this reason that the mortgage rate environment can have such an impact on the housing market.
When mortgage rates are low, financing a home purchase becomes more affordable, allowing more buyers to enter the market, ultimately increasing the demand for a home. The opposite has also typicallybeen true—higher rates can also have the opposite, thereby causing the market to cool down.
But, to propose a novel idea—should it?
Equity as an Appreciating Asset
Something that’s often lost in the question of whether or not to buy a house is the potential of equity. Equity is the value of your interest in the home—in the case of a mortgage, it’s the difference between how much your home is worth and how much you owe on your mortgage.
So, while you don’t own your home outright just yet, even partial equity can prove useful. Between consistent mortgage payments and home appreciation, your equity can grow. As your home equity grows, this can serve as another asset that is not directly tied to stocks or bonds and historically speaking, has appreciated at a national average of 3% to 5%. The great thing about building home equity is that you’ll be able to easily tap into for life’s next chapter—whether that’s:
Your next home (equity used as a larger down payment)
Large, unexpected expenses (a cash-out refinance, home equity loan, or home equity line of credit)
Summed up, equity is a lot like a savings account that you live in!
The Biggest Trade-Off of Renting vs. Buying
If you don’t currently own your own home, then chances are you’re renting. While the trade-offs between buying a home versus renting are well-documented, the most prominent trade-off often boils down to moving flexibility versus home appreciation (building equity).
With renting, you have the flexibility to change your apartment, city, or state of residence on an annual basis (or sooner, if you need to break a lease for some reason). Additionally, depending on your lease, any needed maintenance will likely be off your shoulders.
That said, the major downside of renting is that you’re not building equity, which built over time can later be used for retirement or even emergency situations where you may need a large chunk of cash to pay something off. It’s for this reason that you could make a compelling case for starting to build equity as soon as possible!
Ultimately: When is it the Right Time for you?
When it really comes down to it, the biggest variable for deciding if now’s the right time to buy a house is whether it makes sense for you. If you’re likely to move several times in the next couple of years, maybe buying a home can wait. On the flip side, if you’re at a point in your life with a stable income and don’t foresee a reason to move, then your future self could be very thankful that you put down roots and started building equity early.
Your Next Steps
If now seems like the right time to start mapping out your homebuying timeline, you’re in luck—your next step is simply one click away. Our mortgage professionals are ready to answer any questions you might have regarding home financing, whether that’s “what’s the right mortgage product for my situation?” or “how does the housing market this year compare to 2021?” Reach out today to get started!
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