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Is Now A Good Time To Buy A House?

6-Minute Read
Published on May 18, 2022

In 2021, home prices went up 16.9% over 2020, which was the highest increase since 1999, according to the National Association of REALTORs®. And Zillow predicts that home prices will continue to climb in 2022, with a 17.3% increase by January 2023.

Not to mention, home inventory is dwindling. The low housing inventory means that buyers are forced to drive up the price to snag a home.

So, with low inventory and growing home prices, this leaves many potential buyers wondering, "is now a good time to buy a house?" The answer might be more complex than you think. This article will review some of the main factors when determining if it’s the right time to buy a home.

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Is Right Now A Good Time To Buy A House?

There are some things worth thinking about when deciding if now is a good time to buy a home. Potential home buyers should consider current and future market trends, current mortgage interest rates, home prices and inflation.

In some cases, market conditions make it more challenging for some buyers to purchase a home. For starters, in 2021, we saw interest rates reach historic lows, which made it easier for some buyers to afford housing. But unfortunately, the Federal Reserve is increasing rates to mitigate the rise of inflation.

So, while interest rates were averaging about 3%, now they are increasing to 5% – 6%. This could raise your cost to borrow by thousands or even tens of thousands of dollars over the life of the loan.  

Another factor is the condition of the market. Right now, we’re in a seller’s market, which means there are more buyers looking to purchase a home than the number of homes available for sale. In a seller’s market, homes fly off the market, which can increase competition since so few buyers are fighting for the same proprieties. Buyers may bid higher since they want their offers to stand out from the rest.

Even with less-than-ideal conditions, deciding the right time to buy a home comes down to your financial situation. Your own payments, credit score and budget can make the difference when buying a home. It’s wise to assess your financial circumstances and current home prices in your community. This way, you can decide if you have enough set aside to afford the monthly payments.

Why Now Is A Good Time To Buy A House

Despite the uptick in home prices and interest rates, and minimal inventory, in some cases, it’s still a good time to buy a home. For example, if you’re ready to buy a home, you could lock in a favorable interest rate. While rates may seem high at 5+%, historically they have been much higher. Locking in a favorable rate can help you buy a home before properties increase in value and become even more expensive.

If you think that current market conditions and mortgage rates aren’t making it a favorable time to buy, you may want to wait until there is more inventory. To calculate housing inventory and see if it’s increased, you can divide the number of homes on the market by the number of home sales in the last monthNumbers 7 or above means there are plenty of houses available (buyer’s market). If the number’s 5 or below, it means housing supply is limited (seller’s market). Keeping track of home sales in your area will help decide if the housing supply is increasing or dipping. 

It may also be a good time for personal reasons. You family may be growing, or your career or lifestyle are changing. These are great reasons to buy a house, no matter what the market.

Why Now Might Not Be A Good Time To Buy A House

Again, current housing market are making home buying more difficult and expensive right now for many buyers. Home values are high and the competition can further drive up the price.

Not only that, but buyers might be forced to make their offer more attractive by waiving contingencies or putting in an all-cash offer. For buyers that are unable to do the same, it could take forever to win a bidding war on a property.

So, monitoring the market conditions and keeping an eye on the inventory might be your best bet. This means you can enter the market when few buyers are competing for the same properties.

The current market is challenging existing homeowners looking to purchase their next home while trying to sell the one they’re living in. Their current mortgages may have lower interest rates that aren’t obtainable in the market today.

There is a higher chance of exponentially increasing their monthly expenses by buying a new home. If you’re still flexible on when you want to purchase your new home, it may be smarter to wait. There could be a better opportunity for rates and prices in the future. But know that if you wait, there’s no guarantee that rates and prices will come down.

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How To Decide If Buying A House Now Is A Good Idea

Deciding to buy a home really depends on your unique situation. So, if you’re on the fence, here are some conditions worth considering to help make the right decision for your needs.

Financial Stability

Buying a home is a big financial commitment. That’s why it’s important to be financially prepared before deciding to buy a house. Look at how much money you’ll need to buy a house.

You’ll need to factor in a down payment, closing costs, home inspection and mortgage payments. Keep in mind, the more you can put down, the lower your monthly payments will be.

To save for a down payment and other costs, it’s smart to make a budget. This way, you know what money you have coming in and going out and how much money you can save every month toward a down payment.

You may also want to put your savings on autopilot by setting up automatic contributions to your house fund. Your bank or financial institution can walk you through the process to set up your auto savings.

Local Housing Market Trends

Home buyers may want to monitor local housing market conditions before determining whether it’s the right time to buy. Again, keeping close tabs on the housing inventory will aid you in assessing if you’re a buyer’s market or a seller’s market.

Buying a home in a buyer’s market is favorable, since you’ll have a variety of houses available with less competition. On the other hand, when current market conditions indicate a seller’s market, less inventory is available, and you will have more competition when bidding on a home.

Mortgage Lender Requirements

Although lending requirements have loosened since 2021, lenders still have relatively strict requirements for loan approval. For this reason, it’s important to get your credit score, debt-to-income (DTI) ratio and other mortgage qualifications in order before buying a house.

Typically, you’ll need a credit score of 620 or above to qualify for a conventional mortgage. However, you could still qualify for an FHA loan if you have at least a score of 500 plus a 10% down payment.

When it comes to your debt-to-income ratio, you’ll want to have at a DTI of 50% or less to qualify for most mortgages. Your DTI shows lenders what percentage of your income goes towards your bills and debt repayment. Therefore, the lower your DTI, the more favorable you are to lenders.

It’s also smart to save a sum of cash for a down payment and closing cost. To avoid private mortgage insurance, you’ll need to have at least 20% of the value of the home. Closing costs are usually 3% – 6% of loan amount. So, you’ll want to ensure you have enough money set aside to qualify for the loan. 

Readiness To Buy 

When it comes to buying a home, it’s about when the best time is for you. Can you see yourself living in this location long-term? It’s ideal to live in the home for a number of years. This is because you want the value of your home and equity to surpass the expenses of selling your home and buying a new one. Consider closing costs and real estate commissions when reviewing the numbers.

When you’re thinking of buying a home, there are a few things you want to review. First, it’s a lengthy commitment in order to come out on top. How is your job stability? Have you been at your company for a long time, and is there room for growth? Are you financially stable to pay for every cost included?

You also want to look at your credit and debt-to-income ratio. These are factored in when it comes to your loan. The best rates and terms are normally offered to borrowers with a credit score of 740 or higher.

If your credit or debit needs work, you may want to postpone your purchase for now. Rebuild your credit and stable your finances before taking the plunge.

Apply for a mortgage today!

Apply online for expert recommendations with real interest rates and payments.

Start Your Application

The Bottom Line

Buying a home is a big accomplishment. It’s also a long-term, large financial investment. There are factors you really want to consider before signing for a loan. Reviewing your finances, job security, future goals and location you’re looking is important. Check current housing markets, interest rates and remember that if you ever sell, you want to end up on top financially.

So, if you’re looking to buy a home, look at the big picture and every aspect included. Here’s a step-by-step home buying guide that can help you make sure you’re prepared.


Headshot Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is an experienced financial writer. In addition to being a contributing writer at Rocket Homes, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.