Buy now or wait until next year? It depends

Buy now, or wait until 2024? That’s the question prospective homeowners are struggling to answer in today’s housing market. Home prices skyrocketed throughout the pandemic, and the Federal Reserve’s work to tame inflation has sent mortgage rates soaring, too. That combination is leading many would-be buyers to pick the “wait” side of the equation. In fact, according to the Fannie Mae Home Purchase Sentiment Fannie Mae Home Purchase Sentiment Index released at the close of 2022, only 21 percent of consumers believe it’s a good time to buy a house.

However, things are starting to look better for buyers in many parts of the country. A January 2023 report from real estate company Knock predicts that 36 U.S. markets will become buyer’s markets by the end of the year — including plenty of desirable places like Phoenix, Denver, Dallas and Las Vegas. Prices are already starting to decline, or at least to increase at a lower rate, and many experts foresee that remaining the case all year.

So, is it time to buy a home? Or is it better to wait on the sidelines in the hopes that prices or rates see a significant drop soon? The decision ultimately comes down to your finances. Here are some key considerations to help determine the way forward.

Should I buy a house now?

If you buy now, you can start building equity immediately. That’s true no matter which way the real estate market is leaning at the time. A key point for today’s market, though, is that buying now means avoiding the potential for additional mortgage-rate increases later.

“If a buyer finds a property they would like to call home, they should not delay,” says Stacey Froelich, a broker with Compass in New York City. “You cannot time the market, and a home should be a longterm investment. In the end, higher mortgage rates will cost a buyer more monthly if they are financing.”

Rising rates can spell serious trouble for your monthly budget.

Bankrate’s loan calculator can help you give you a sense of what a higher rate would mean for your payments. For example, on a $450,000 30-year loan with a 6.5 percent interest rate, the monthly payment is just over $2,844. If that rate jumps to 7.5 percent, the payment leaps to more than $3,146. Plus, you’ll wind up paying a lot more in interest over the life of the loan.

In general, if you can answer yes to these three questions, now is the time to buy.

1. Do you have excellent credit?

Anytime you’re borrowing money, start by reviewing your credit report and your credit score. The best deals on mortgages will be available to those with high credit scores of 740 and above. If you have demonstrated that you are a low- risk borrower with a history of on-time payments, you’ll be in line for the lowest mortgage rates that a lender offers.

2. Saved for a down payment?

In addition to paying your bills on time, have you managed to save a fair amount of money, too? If you are sitting on a sizable chunk of change that can make a big dent in your down payment, now is a good time to buy. Make sure you’ll have plenty left over, though. Lenders feel more comfortable loaning you money if you have additional cash reserves that can provide a cushion if something unexpected happens.

3. Planning to stay for a while?

In addition to the purchase price, buying a home comes with closing costs that can run between 2 and 6 percent of the property’s price. So, to justify those one-time transaction costs, it’s wise to be reasonably certain that you won’t move again anytime soon — or that you’ll be financially stable enough to hold on to the property and rent it out.

Should I wait to buy a home?

If you want to become a homeowner but are waiting for mortgage rates to decline, a bit of patience might be in order. Fannie Mae predicts that 30-year mortgage rates will average 6.3 percent throughout 2023 before falling to 5.7 percent in 2024.

While six-tenths of a percentage point might not sound like much, it can make a big difference in how much house you can afford over the long run. For example, Bankrate’s mortgage calculator shows that if you buy a $350,000 home with a 20 percent down payment, the monthly payment for principal and interest on a 30-year loan with a 6.3 percent interest rate is $1,733. The same loan at a 5.7 percent interest rate brings those monthly payments down to $1,625. That’s more than $100 of savings each month — adding up to more than $1,200 a year, or $36,000 over the life of a 30-year loan. Of course, it’s impossible to predict where rates will really land by the end of the year, but here are three instances in which it might make more sense to wait out the market:

1. If home values are dropping

If you looked at the market in the late spring of 2022 and opted to wait, you probably made a wise move — in many areas, that was the pricing peak. Since then, some metro areas have seen significant drops in median sale prices. A January 2023 report from Redfin shows that prices in big-ticket cities, including Los Angeles, Seattle, Boston and even New York, saw price declines. Those declines may not be done yet, so it could pay to be patient for a bit longer.

2. Is inventory increasing

When there are more properties on the market to choose from, buyers enjoy more bargaining power. Since a lot of

Continued on Page 12