Is now a good time to buy a house?

Buying a house can be intimidating, especially when the real estate market changes so frequently and so quickly. It’s even more unsettling for homeowners who have to move out of necessity. In addition to making sure they’re able to buy a home, many qualified homebuyers wonder if they should buy a house in the present market.

It’s a complicated question with a complicated answer. While home prices are leveling out (even dropping in some markets), inventory is opening up, and competition is waning, interest rates remain extraordinarily high. However, rents have dropped more precipitously, making it easier to afford a living space that you could never afford to buy.

The longer you avoid buying a house, the harder it is to start. Despite the obstacles of the current market and the attractiveness of the rental market, it’s still a good time to buy a house.

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Should I buy a house now?

Homeownership is one of the best ways to save money and grow your wealth. It’s one of the safer investments you can make as housing market values have steadily increased (with a couple notable exceptions) for the last 60 years. After a scorching increase in home prices during the COVID-19 pandemic, prices have dropped — only to continue increasing at a more steady rate. With little expected to change in the next two years, now is a good time to buy a house and start building home equity when prices are still in a dip.

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 — high interest rates, a housing market correction, or rumblings of a recession. 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.

Tips for buying a house in 2024

• 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 as high a down payment as possible: While you can technically purchase a house with as little as 3.5% down, a 20% down payment will help you get a lower interest rate and avoid 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 couple of years 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 a rate buydown, a mortgage recast, or refinance to help lower your mortgage payments.

Need to sell and buy 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. 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 7% or more and you don’t need to move, right now is not a good time to buy a house.

• 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 still a good time to buy a home — despite having less purchasing power.

Home prices won’t drop dramatically

Buyers waiting for prices to drop will be disappointed to learn that Fannie Mae projects that to take some time. The mortgage giant projects housing prices to increase by as much as 6.7% in 2024, before tapering to a 0.4% decrease by Q4 2025.

While mortgage rates are projected to decrease slightly, the increases in home values will result in a market that largely emulates the current one. Homeowners currently locked into a lower rate still 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 a new mortgage rate may be less punitive the longer they wait, increases in housing prices will offset that benefit. 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.

Inventory is tight

We all remember homebuying horror stories of bidding wars and waiving contingencies in a hyper-competitive market. One of the primary pain points for buyers during this time was existing homeowners with the financial security of their own home sale coming in with bigger cash offers and with a heavier appetite for risk.

With high mortgage rates, many homeowners are opting not to sell to stay locked into their preferential mortgages. The November 2023 National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report showed the lowest builder sentiment since December 2022, meaning most builders see poor conditions for new construction in 2024. Between homesellers tightening the belt and a lack of new supply, inventory projects to be very tight.

While low inventory levels typically contribute to a seller’s market, they also mean there are far fewer buyers to compete with. As home prices even out

Interest rates will taper off

Heading into 2024, interest rates for a home loan are sitting around a national average above 7.5% for a 30-year fixed-rate mortgage. This is a full percentage point above the same time last year, and one of the highest we’ve seen in recent years, but it’s still below the historical average of 7.77%.

While the Federal Reserve has insisted it will raise rates to curb inflation, and there are signs that inflation is beginning to slow. That bodes well for mortgage rates in 2024 as they’re expected to dip from this Q4 2023 peak.

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 no-fee refinancing 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.

Should I wait until next year to buy a house?

With home values forecasted to modestly fall in 2024 and 2025 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 2025 pending a major shift in executive policy. (Possible with 2024 being an election year.)

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.

Still, the longer you wait, the longer you put off building equity in a home so if you feel financially and personally ready to buy a home, now is always the right time.