Is Now a Good Time to Buy a House?
Key takeaways:
- If you have the means, now may be a good time to buy a house.
- The median U.S. home sale price recently reached $428,000, continuing 18 months of year-over-year gains.
- A strong jobs report helped push mortgage rates past 7% last week, and they’ve only continued rising.
- The Fed closed out 2024 with a third interest rate cut, but fears over inflation and potential tariffs caused them to dial back for 2025.
- Even with headwinds, the market is still heating up: Home sales continue rising in some markets, as buyers adapt to higher rates, rising prices, and industry changes.
As the new year gets underway, many homebuyers are wondering if now is a good time to enter the market. Housing is still largely unaffordable for most of the country, after all, and shows little signs of improving. Given these challenges, it’s natural to wonder if now is the right time to take the leap.
In short, whether or not it’s a good time to buy a house boils down to if it’s a good time for you to buy a house. Let’s dive a bit deeper into market trends to help you answer, “Should I buy a house now or wait?” Plus, we’ll talk a bit about personal considerations.
Market considerations: What’s going on in the housing market?
Here are some key market trends to keep an eye on and help you make an informed homebuying choice.
House prices: Sky-high and still climbing
The median U.S. sale price currently sits at $428,000. House prices have posted year-over-year gains for 18 consecutive months and are over 45% higher than they were in 2020. We expect prices to continue rising this year, pushing more would-be buyers into renting.
>> Read: Redfin’s 2025 Housing Market Predictions
Mortgage rates: Elevated and volatile
As of January 13th, daily average 30-year fixed mortgage rates sit at 7.3% – a small jump from last week. Rates have remained elevated primarily because of inflation anxiety, election jitters, and a more negative 2025 roadmap from the Fed.
Unfortunately, after a strong jobs report in January, experts now predict just one 25 bps (0.25%) rate cut this year, barring unexpected economic changes. This will help keep mortgage rates closer to 7%.
Mortgage rates are important because they directly translate to monthly housing costs. The higher the rate, the more you pay every month. For example, let’s assume you make a 20% downpayment on a $380,000 house. Using this week’s 7.3% rate, your monthly payment would be $2,664 (including home insurance and taxes). If we drop that rate to 6.0%, the monthly payment drops to $2,345. This is why, when rates fell to 6.4% back in August 2024, homebuyers gained nearly $30,000 over the lifetime of their mortgage.
Supply: Limited, but rising
Months of supply hovered between 3 and 4 months for most of 2024, which is close to a balanced market. Supply below 4 months tends to favor sellers; above 4 months often favors buyers.
Supply has slowly made a comeback from 2021, when it bottomed out at just under two months – good news for buyers. However, that’s partly because more homes are sitting on the market unsold, not because building has rebounded.
In fact, new construction has actually dropped in recent months, because more inventory is hitting the market. Builders have slowly backed off since the pandemic-driven boom: New housing starts were down 6.9% late in 2024.
Investor activity has also plateaued and returned to pre-pandemic norms, helping supply recover.
Demand: Slowly coming back
Redfin’s Homebuyer Demand Index continues inching up, as more buyers accept higher rates and begin their home search. Homebuyer demand has remained strong since November. However, this hasn’t translated into more sales.
Other metrics are less convincing, though, like new listings remaining flat and a falling share of sales going under contract within two weeks.
In general, demand outpaces supply, which is driving up prices throughout the country. This means it may be a good time to buy, if you’re prepared for competition. Homes that are priced well and in good condition typically fly off the market.
Inflation: An uncertain future
Thanks in part to the Fed cracking down hard on pandemic-related inflation, inflation has dropped close to their 2% target benchmark. This is a major improvement from the meteoric post-pandemic inflation surge, which peaked at 9.1% in July 2022. Lower inflation means less spending on goods and services, which can help buyers’ budgets.
However, recent economic data has the Fed concerned about inflation creeping back up. Plus, experts believe some of Trump’s policy proposals could reignite inflation, so it’s unclear what lies ahead.
>> Read: Inflation and House Prices: What Homebuyers, Sellers, and Renters Need to Know
Competition: Strong, but it depends on where you’re looking
Recent surges in homebuyer activity means sellers could see more competition for their listings.
House hunters scared off by high mortgage rates have been waiting on the sidelines for years, especially as inventory flagged due to sellers wanting to hold on to their pandemic-era rates (the lock-in effect). However, as 7% rates and near-record prices become the norm, more buyers are deciding to enter the market.
This trend varies by market, though. For example, in Texas and Florida, homes are sitting on the market for longer, while homes in Midwest and East Coast metros are selling faster.
>> Read: How to Sell Your House in 2025: A Comprehensive Guide
Personal considerations: Are you ready to buy and own a house?
When deciding whether to buy a home in today’s climate, you’ll want to think beyond market conditions and focus on your individual circumstances. Here are some personal considerations to keep in mind.
Financial health
Take stock of your current savings, credit score, and debt levels. Can you afford a house? Or does renting make more sense?
Housing is a long-term commitment, so you’ll want a solid emergency fund for maintenance and unexpected costs.
Monthly budget
Determine how a mortgage payment at today’s rates might impact your lifestyle. Make sure you can comfortably handle monthly payments, property taxes, insurance, and other homeownership expenses.
Job and location stability
Buying a house makes sense if you plan to stay put for several years. A stable job or reliable income is crucial to avoid financial strain, especially if home prices or interest rates rise further.
Choosing your location is also essential. Is your potential home prone to flooding, wildfires, or other climate risks? This is especially important today, as insurers continue dropping homeowners at alarming rates.
Personal goals and timelines
Think about life events, like starting a family, retiring, or relocating. These factors can make owning a home either more appealing or potentially riskier if you need to move soon.
Lifestyle preferences
Homeownership comes with ongoing responsibilities, like maintenance, repairs, and property taxes. Ask yourself if you have the time, resources, and a desire to handle them.
>> Read: Am I Ready to Buy a House? 8 Questions to Help You Decide
Will mortgage rates fall further in 2024?
Today’s mortgage rates reflect what investors think the Fed will do. Investors believe the Fed is done limiting inflation and expect mortgage rates to hover around 7% through 2025. Economists’ expectations are slightly clouded for the foreseeable future, though, due to Trump’s policy uncertainties.
In other words, economists expect mortgage rates to remain where they are, because investors have already priced in the recent interest rate cuts and other economic data. Unexpected changes in inflation and employment data could change experts’ outlooks, though.
Should you lock in your mortgage rate today?
If you have the means, now is a great time to lock in a mortgage rate. Rates are lower than they were a year ago and are unlikely to fall significantly in the new year.
If you lock in your rate and rates suddenly fall, you have the option to refinance your mortgage too.
All-cash buyers hoping to avoid mortgages altogether should also act now to avoid probable price hikes as competition heats up. We expect more home sales in 2025.
So, is now a good time to buy a house?
If you have the means and are ready to own a home, now is a good time to buy a house. Waiting for rates to fall leaves you at risk of increased competition among buyers and subsequent price hikes from sellers. Rates are lower than they were a year ago and sales are still sluggish but improving, so now may be the time to act. Plus, rates are unlikely to fall substantially this year.
It’s worth noting, though, that the market has been topsy-turvy recently due to historically low housing supply. For example, higher mortgage rates typically push house prices down, but they have had the opposite effect over the past two years. Also, declining inventory typically leads to more competition, but prices have been too high for many buyers to afford, causing some homes to sit unsold and others to sell in a few days. A new administration brings another layer of uncertainty, too.
It’s important to be prepared for any surprises that may come.
>> Read: How to Buy a House: 10-Step Home-Buying Guide
Final thoughts
If you’re in the market for a house and have been scared off by high rates, now is the time to connect with an agent and start your home search. Rates will likely remain steady for the foreseeable future, but buyers are getting restless, helping the market gain momentum. The longer you wait, the more competition you’ll see.
Source link