Is now a bad time to buy a home?
If you’ve been reading the news, you may have heard it’s a “horrible” time to buy a house.
And the truth is there are some real challenges to buying a home right now — rising prices and low inventory chief among them.
But “horrible”? Not for everyone.
In fact, for some people, it might be the perfect time to buy a house. So if you’re ready, don’t let the ‘conventional wisdom’ stop you. Focus on what’s right for you in today’s market.
In this article (Skip to...)
- Home buying challenges
- Why it’s not a bad time to buy
- Finding affordable homes
- Who should buy a house right now?
- Check your eligibility
Challenges in today’s real estate market
There are a number of obstacles in today’s housing market. For the right buyer, none of these obstacles need to be deal-breakers. But it’s important to know what to expect.
Most recently, there are rising mortgage rates. According to the Mortgage Bankers Association, rates have risen in seven of the last eight weeks.
The current average on a 30-year, fixed-rate loan clocks in at 3.33% — almost 0.50 percentage points higher than what we saw at the start of the year.
When rates rise, it makes it more expensive to buy a home. Buyers need to either adjust their price range downward or prepare for a monthly payment a little higher than they were planning.
On top of rising rates, there’s also a supply problem. Data from Realtor.com shows housing inventory is down 52% over the year. This shortage has led to stiff competition for the few homes that are out there, and it’s driven up prices significantly.
Nationally, the median home price hit $370,000 in March — more than a 15% rise in the last 12 months.
These are some of the big reasons you might hear people saying it’s a ‘terrible time to buy a house.’
But there’s a flip side to every story. And even in the current real estate market, there are bright spots for potential buyers.
5 reasons it’s not a horrible time to buy a house
Everything has its challenges — and the housing market is no different. So while there are definitely some struggles that exist for today’s homebuyers, there are also plenty of reasons for optimism (especially if you look back in time).
Here are just a few reasons why it’s not such a bad time to buy a house:
1. Mortgage interest rates are still really low
’Record low’ interest rates might be gone, but they’re still really low — especially if you look back in history.
According to Freddie Mac, the average 30-year mortgage rate was 4.54% in 2018. And 10 years before that? It was in the 6% range.
Compared to historical interest rates, today’s rates are still super low — often equating to hundreds less per month and likely tens of thousands less in mortgage interest across the life of the loan.
When you consider that most experts project mortgage rates will rise more as the economy continues to improve, buying a home at current interest rates starts to look pretty great.
2. Affordability is still strong
You’d think with rising rates and increasing home prices that homes would be downright unaffordable. But according to the data, home buying power is actually up, with a 19% increase over the year.
The reason is two-fold: First, those historically low mortgage rates we talked about above are keeping mortgage payments affordable. On top of this, incomes have risen — albeit modestly — in many areas.
Today’s median home prices are more affordable (historically speaking) in 52% of American counties.
ATTOM Data Solution’s recent 2021 U.S. Home Affordability Report backs this up. According to the report, median home prices are more affordable (historically speaking) in 52% of American counties.
“That was down from 63% of counties in the first quarter of 2020 and 95% during the same period five years ago,” the report reads.
“But rising wages and falling mortgage rates still compensated for near-20% spikes in home prices over the past year, helping to keep median home prices affordable for average wage earners around the country.”
3. Buyers have more flexibility to choose their location
The coronavirus pandemic has allowed more Americans to work from home than ever. In fact, according to data from Upwork, about 50% of the U.S. workforce is working remotely.
If you’re one of many in this boat — and the morning commute or proximity to work isn’t an issue — then you have the upper hand when buying a home, particularly in today’s competitive market.
Rather than fighting the crowds in your current market or a busy urban or suburban area, your work flexibility lets you go anywhere. You can focus your home search on places where properties are more available — and prices aren’t so hefty. (More on these markets later!)
4. Mortgage standards are loosening up
Mortgage lenders got stricter at the start of the pandemic, looking to lessen risk as many Americans faced job losses, wage cuts, and other economic struggles.
Some lenders even required 700+ credit scores and 20% down payments from buyers. Others stopped offering low-credit-score loan options (like FHA mortgages) altogether.
Now, those tighter standards are starting to loosen back up.
MBA’s Mortgage Credit Availability Index is currently at 124.6 — up from 120.9 six months ago. An increase in the index indicates that mortgages are easier to come by.
That means if you’ve got a less-than-stellar credit score, your chances are much better at securing a mortgage loan than they were a few months ago — yet another reason it might be a smart time to buy a house.
5. Home equity is on the rise
Rising home prices can be a challenge for first-time home buyers. But there are also benefits to buying in a market where home values are increasing.
Even if you make a low down payment, rising prices mean your home’s value will appreciate more quickly.
This lets you take advantage of your equity sooner — for example, by canceling private mortgage insurance (PMI) or borrowing against your equity to make home improvements.
There are benefits for current homeowners, too.
Increased home values mean home sellers often see bigger profits. This can allow you to make a substantial down payment on your new home.
You might even have the option to use the equity in your current home as a down payment on a vacation home or investment property.
So, while high home prices can be an obstacle, they also increase the benefits of homeownership for those who can get a foot in the door.
Where are homes still affordable?
Home prices are definitely increasing, but the trend isn’t universal. Prices are still affordable or even falling in some parts of the U.S.
According to Realtor.com, prices in Memphis are actually down 1.4% over the year. There, the median home price is just $240,000 — well below the national median.
Homes in Miami and Denver are getting more affordable, too (prices are down 1.2% and 0.4%, respectively).
If you look at the share of wages a home costs, Schuylkill County, PA, is your best bet. There, properties require just 6.3% of the area’s average salary — much lower than the national average of 23.7%.
Bibb County, GA, Fayette County, PA, Macon County, IL, and Robeson County, NC, are also on the affordable side, requiring just 10% or less of local wages.
Regionally speaking, home prices are only declining in the East South Central Census division, which includes Alabama, Kentucky, Mississippi, and Tennessee.
Prices are up the most in the Mountain Division (Arizona, Colorado, Idaho, Montana, New Mexico, Nevada, Utah, and Wyoming).
Luckily, with today’s work-from-home trend, many buyers have the flexibility to choose their location and shop around in more affordable markets.
Who should buy a house right now?
Obviously, today’s market comes with unique challenges. So buying a home right now isn’t going to be the best choice for everyone.
For some people, though, it could be the perfect time to buy — even offering serious savings in the long haul.
Here are a few scenarios where you might want to consider buying a house now:
- You plan to buy in the next year or so anyway. If you think a home purchase is in your short-term future, pulling the trigger sooner than later is likely your best move. With home prices and rates projected to rise, acting now could save you serious cash over time
- You’re working from home and are flexible in location. If you’re not tied down to a specific market, then you have the power to really shop around for your home. This could mean less competition, lower prices, and a better deal on the whole
- You’re confident in your job and wages. Unemployment is improving, but it’s still high historically speaking. If you’re confident your job is solid and you won’t see wage cuts in the near term, buying a home could be smart — especially if you have the funds saved up to make it happen
- You have enough savings to buy a home comfortably. Paying the down payment and closing costs shouldn’t wipe out your entire savings account. If you can afford the upfront costs and still maintain an emergency fund, you’re in a good position to buy. Luckily, down payment assistance programs can help buyers who need a little extra boost to their savings
In addition, buyers with strong credit typically get lower mortgage rates and better deals. According to ICE Mortgage Technology, the average credit score for mortgage borrowers last month was 753.
However, you don’t need a perfect score to qualify. The average score on FHA loan applications was a bit lower, at 682. And many lenders will approve FHA borrowers with FICO scores as low as 580.
Check your home buying eligibility
Buying a home is always a personal decision. While the overall market will have an influence on prices and housing competition, the choice of whether to buy ultimately comes down to two factors:
- Are you ready to buy? You should be financially stable and plan to stay in the same area for at least 3-5 years
- Can you get financing? Will a mortgage lender approve you for a home loan, and can you afford the home you want?
The first factor is personal — only you know if it’s the right stage in your life to buy a home.
The second, you can easily answer by getting pre-approved for a mortgage. Lenders can quickly take a look at your finances and determine how much home loan you’re approved for.
If you’re ready in both areas, then the answer is yes — it’s a good time for you to buy!