The housing market is crazy — is now a good time to buy a house?

Buying a house can be intimidating, and the rapidly changing real estate market is making many house hunters uneasy. This is especially true for homeowners who need to move out of necessity. On top of making sure they can buy a home, many qualified homebuyers are wondering if they should buy a house.

Despite the obstacles of the current market, it’s still a good time to buy a house. Home prices are leveling out (even dropping in some markets), inventory is opening up, competition is waning, and there are several ways to lower your mortgage interest rate. If you need to buy in the near future, the best time to buy a house may be now.

Should I buy a house now?

Buying a house is like saving money — the longer you put it off, the harder it is to start. (In fact, homeownership is one of the best ways to save money and grow your wealth.) With little expected to change in the real estate market in the next two years, now is a great time to buy a house and start building home equity.

But before you begin the process, ensure you’re ready to reap the benefits of homeownership. Here’s how to tell if you’re ready to buy:

4 signs you're ready to buy a house

• Your finances are locked in: Buying and owning a home is a major financial commitment. You’ll need strong credit and a good debt-to-income ratio with enough savings to cover a down payment and other expenses associated with home buying.
• You’re confident navigating the current market: There are a lot of factors to consider in today's real estate market — fluctuating interest rates, rumbles of a coming housing market correction. You'll need to understand how these factors play into buying a home to come out on top.
• You’re ready to settle down: A good rule is that you shouldn’t sell your house sooner than five years after buying because it takes at least that long to recoup the costs. If you’re ready to put down roots for a while, then buying a home may be a good choice.
• Life circumstances require it: Whether you’re relocating for a job, upsizing to make room for another (or new) family member, or downsizing for simplicity’s sake, buying a house is most often a better investment than renting.

→ Learn more in detail about whether buying a house is worth it

Tips for buying a house in 2023

• Get a preapproval letter: This letter from your lender states how much they are willing to lend you to purchase a home. It’s not a guarantee, but it’s a reliable estimate of your budget and signals to sellers that you’re ready and serious about buying.
• Aim for a 20% down payment: While you can technically purchase a house with a smaller down payment, try to put down as much as you can — or else you’ll end up with higher interest rates and Private Mortgage Insurance (PMI).
• Plan for the long haul: The short-term outlook for buying a home isn’t as bright as it was a year ago, but in the long-term, buying a home is still one of the best ways to build wealth. Buy a home that you’re comfortable living in for a while, and use rate buydowns, a mortgage recast, or refinance to help lower your mortgage payments.

Selling while buying a home? When you work with Orchard, we can give you a guaranteed offer on your current home so it doesn't hold you back from buying a new one. You'll be saving as much as $5,000 in moving costs, too. Get started with a free home valuation — our estimates are 30% more accurate than leading estimates.

3 reasons it's a good time to buy a house

The market is evolving. The impact of the changing real estate landscape comes down to the circumstances of the individual homebuyer and seller. The answer to whether or not now is a good time to buy a house depends on who you are:

• If you’re one of the nearly 85% of homeowners who has an interest rate under the current rates of 6% or more and you don’t need to move, right now is not a good time to buy a house.
• But, if you’re a first time homebuyer who has been out-bid by cash-buyers and investors for the last two years, or you’re a homeowner who needs to relocate, up- or downsize, now is a good time to buy a home.

Home prices won’t drop dramatically

Buyers waiting for prices to drop will be disappointed to learn that today’s prices are forecasted to fall by only 1.5% in 2023, and 1.4% in 2024, according to Fannie Mae. (However, it may be closer to 10% in some of the most inflated markets.)

These small decreases in home values are unlikely to offset rising mortgage rates, so homeowners who are currently locked into a lower rate won’t have much incentive to buy unless other circumstances (a growing family, a job relocation, etc.) are motivating them to move.

The opposite is true for buyers who need to move out of necessity and are selling a home at the same time. Buyers in this situation risk losing home equity the longer they wait, while simultaneously chancing higher mortgage rates (more on rising mortgage rates later). Additionally, homeowners who sell now but wait to buy will cut into their savings by paying rent when they could have been building equity in a new home.

Use our Home Sale Calculator to see how much you could lose if you wait to sell.

Less competition now than in recent years

The hyper-competitive market is slowing down. Less competition among homebuyers is incentivizing sellers to make concessions or even lower their listing prices. Most importantly, inventory is growing.

One of the driving factors of the seller’s market has been low inventory levels, as a result of pandemic-related supply chain issues and fallout from the 2008 financial crisis. The chart below shows the supply of existing home sales, as measured by the months that it would take for the supply to run out if it sold at current rates:

The National Association of Realtors has defined a six-month supply of existing home inventory as the baseline for moderate levels of appreciation (and moderate competition). Anything less than six months will see higher appreciation rates (and more competition).

The chart above illustrates just how tight inventory has been for the past two years and why competition has felt so ruthless. However, the upward trajectory of available homes since January 2022 offers a promising signal to homebuyers: Inventory is trending towards normal levels, and competition is easing.

Interest rates are going up, but they’re still affordable

Heading into 2023, interest rates for a home loan are between 6% and 7% for 30-year fixed-rate mortgages. This is a marked increase from rates just one year ago (which averaged 2.88% in July of 2021), but that doesn’t mean that today’s current rates are bad. In fact, they’re still below the historical average of 7.77%.

The Federal Reserve announced that it will raise rates until inflation is under control. The policy rate set by the Fed can indirectly influence mortgage rates, and with more rate increases planned for the foreseeable future, locking in the current rate can be the key to getting the most out of your mortgage.

Instead of waiting for near-zero rates that will never come, buyers should use other strategies to lower their interest rates over the lifetime of their loan. Here’s how:

• Negotiate a rate buydown: Sometimes called mortgage points or discount points, a rate buydown is a way to lower interest rates temporarily or over the lifetime of the mortgage. Borrowers can do so by paying the difference between the standard and lowered interest rate at closing. In some cases, sellers will cover some or all of this expense as a part of seller concessions.
• Recast your mortgage: Another option is to make a lump-sum payment towards the principal balance on your mortgage, after which your lender will re-amortize your loan into lower payments. This is known as a loan or mortgage recast, and is a great option for those who come into some money, perhaps from an inheritance or career change.
• When rates level out, refinance: When you refinance your mortgage, you exchange your current home loan with a new one — often with a lower interest rate. It’s a great tool to make your mortgage more affordable in the long run, but is dependent on the interest rates of the market.

When you work with Orchard Mortgage, you get a no-fee refinance for life. That means when interest rates drop, you can refinance your mortgage into a lower rate without having to pay the fees of traditional lenders.

→ Learn more about how soon you can refinance after buying a home

Should I wait until 2024 to buy a house?

With home values forecasted to modestly fall in 2023 and 2024 and the Federal Reserve vocally committed to raising interest rates until inflation is brought under control, the outlook of buying a home is unlikely to change dramatically in 2024. 

However, waiting another year to buy might be right for you if you can substantially increase your savings for a larger down payment, improve your credit score, or reduce your debt-to-income ratio. Each of these factors can impact the size and interest rate of your home loan, and make buying a home that much easier.