Many prospective homebuyers have been biding their time this year, waiting for more favorable conditions. With mortgage rates sitting stubbornly around 7% and home prices up year over year, 2023 hasn’t been a stellar period to buy a home.
Inflation was running wild at the start of this year, prompting the Federal Reserve to swiftly raise interest rates. At the same time, a lack of available homes pushed prices up in numerous markets across the country. However, as we approach a new year, the burning question on people’s minds is whether 2024 will bring more favorable conditions for homebuyers. And if so, do the more favorable conditions mean I should wait to buy or is buying now the right move?
The question took on added importance as the Federal Reserve left interest rates unchanged this week but adjusted its projections to include three cuts to interest rates next year. The move was widely expected and marks an end to the central bank’s round of 11 hikes in interest rates since March 2022. Markets are pricing even odds for rate cuts beginning by May, though some economists think it could be earlier.
There’s never a one-size-fits-all answer to whether now is the right time to buy a home. It’s a big decision that is personalized to you and your financial circumstances. There’s also no way to predict precisely what the market will do in the near future. However, there are a few scenarios to consider to help you determine which move might be best for you in 2024.
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Buy Now: You Need to Move And Can Afford It
Maybe it’s a job opportunity, a change in family structure, the unmanageable cost of your current property or an expiring lease. Whatever the need is — you have to make the choice to find a new place to rent or a home to purchase.
Renting is always an option, but for those who are financially ready for homeownership, it’s often better to buy now versus wait. Buying now can secure you a home to settle into and begin building equity. Owning also allows you to take advantage of other homeownership benefits, like tax deductions from the interest you paid on a mortgage, property taxes and other home repair-related costs.
Buy Now: A High-Interest Rate Doesn’t Scare You
There is no denying mortgage rates are high right now, especially if you grew accustomed to the historically low mortgage rates over the last 15 years. However, mortgage rates hovering near 3% to 4% isn’t the norm historically. According to data from Freddie Mac, since 1971, when it started tracking mortgage rate movements, rates have remained at or above 6% nearly every decade aside from the period following the Great Recession.
If you can still afford to buy and maintain your monthly costs at today’s rates, then buying now is the better move. You always have the flexibility to refinance and secure a lower monthly payment in the future if rates drop.
“Experts predict that rates should be in the mid-sixes by the fourth quarter of 2024 according to recent indicators,” says Jeff Ocasio, a loan officer with Fairway Independent Mortgage Corp., in Tampa, Florida. “Markets, values and rates are always changing, so it’s crucial to make the most of the present. If you’re renting and can qualify, now is the best time to take the leap.”
Just remember to keep your credit score up, stay employed and don’t make any mistakes that will inhibit your refinance strategy when rates do drop.
[READ: What Does It Cost to Own a Home?]
Buy Now: You Plan To Stay in the Home for a Long Time
Renting is a great solution for those who might not know where they want to buy yet. For example, you may choose this path if you recently moved to a new city and aren’t sure where you’d like to live long term, are considering a new job that would require another move or are expecting a big change in family structure in the next year or two that could lead you to move again.
But for those who don’t intend to move any time soon, buying now is definitely the better move. Realtor Steavy Carter with Rogers Healy and Associates in the Dallas-Forth Worth, Texas, area, consistently advocates that now is the right time to buy if you’re financially ready. “The appreciation rate in the greater Dallas market over the last 10 years has averaged between 7% and 8.5% year over year,” Carter says. “That means a home purchased in 2014 for $500K has nearly doubled in value. If home appreciation continues, the house you pass on now will cost you more the longer you wait.”
If prices continue to rise, you’re building equity with each mortgage payment you make. If prices fall, you won’t be as worried because you intend to stay in the home for the long term. This gives you more time for prices to rebound when it comes time to sell and still leaves you in a solid financial position. Either way, you have your foot in the door to build equity instead of leaving a rented home with nothing to show for it.
[READ: How to Decide Where to Live.]
Wait to Buy: You Can’t Afford a Median Priced Home at Today’s Rates
Purchasing a home is a more expensive endeavor than renting. Not only do you need to have a large chunk of cash saved up for a down payment and closing costs, but there are usually more costs associated with owning than with renting. Aside from a few select markets, renting is more affordable than owning a home. This is true even in what’s considered low-cost housing markets.
Take Cincinnati for example — the median home price in September was $271,000, according to the U.S. News Housing Market Index. Not only would you need up to $54,000 for a down payment, plus closing costs, but based on a rate of 7% for a 30-year fixed-rate mortgage on $217,000, your monthly payment without taxes and insurance would be $1,442. The median rent in Cincinnati, on the other hand, is just over $1,500. As a renter, you aren’t responsible for added maintenance costs, property taxes or insurance, making it a more affordable financial move.
If the mortgage payment plus home operation costs would be a struggle with your income and budget, then waiting to buy is the better move.
Wait to Buy: You’re Not Finding The Right Home
Housing inventory is slowly increasing. According to the latest data from Redfin, there was a three-month supply of homes for sale in October 2023. This is a move in the right direction after the pandemic-fueled housing frenzy where the housing supply was under one month, but it is still an undersupplied market. Around six months of supply is considered a balanced market.
The lack of inventory means many buyers are struggling to find a home that meets their needs at a price they can afford. If you’re struggling to find the right house due to a lack of supply in your local market, consider waiting until inventory increases in the future.
“There’s a chance housing inventory and demand will increase as interest rates drop,” Carter says. A lot of homeowners secured a mortgage when rates were 2% or 4% and feel stuck waiting for a more affordable time to re-enter the market. As rates come down, they could return to purchase a home, in turn helping inventory increase.
Wait to Buy: You are Struggling to Qualify At Current Rates or Prices
If you’re finding it difficult to get approved for a mortgage based on your current employment, debt-to-income ratios, outstanding debt or average price of a home at today’s rate in your market, then it’s better to wait to buy. “Focus on financial preparation as you wait. Take steps to lower debt and elevate your credit score. You never want your home purchase to put you in over your head financially,” says Carter.
There are scenarios when waiting is more advantageous, especially if mortgage rates retreat, as currently predicted. But remember, no expert has a crystal ball to accurately guess what will happen in the housing market in the coming year. Many experts predicted home prices would fall in 2023, but the opposite happened. The Housing Market Index shows that average U.S. home prices are up 2.2% year over year.
Many experts also predicted that mortgage rates would fall in 2023, but they rose instead.
Perfectly timing the market shouldn’t be the goal. This decision should be determined by your personal needs, financial means and the time you have to find the right home.
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Should I Buy a House Now or Wait Until 2024? originally appeared on usnews.com
