Home Price Growth Is Back to Pre-Pandemic Levels. Here's What It Means for Buyers

There hasn't been much positive news in the housing market lately, but the latest data from Redfin offers a glimmer of hope for potential home buyers: House price growth is back to pre-pandemic levels.

In February, housing price growth increased just 0.6% from the previous month, which is on par with average monthly increases for the eight years leading up to the COVID-19 pandemic, according to Redfin.

Even more encouraging is that home price growth may be back on track on an annual basis. In February, price growth increased 6.7% from the previous year, matching historical increases leading up to the pandemic and far below the highest annual increase of about 23% about two years ago.

Here's why price increases are cooling and what it means for potential home buyers.

Home price growth is taking a breather

Redfin said the current state of state of the housing market is neither a seller's market nor a buyer's market.

On the one hand, there aren't enough homes available for buyers, which has helped keep demand strong. On the other hand, housing prices are up almost 24% on average from three years ago, and higher mortgage rates have caused many Americans to hit the pause button on their home search.

The result is that there's just enough supply of houses and demand from buyers to cause prices to rise at a pre-pandemic pace, but not enough demand to push them any higher than that.

How to get in the best position to buy a house

If you're in the market to buy a house, there are a few things you can do to put yourself in the best financial position. Here are a few suggestions.

1. Get your credit in shape

Having a good credit score is one of the best ways to get a good mortgage interest rate. In general, a score of 760 or higher will help you get the best rates, but even just improving your score to 700 or higher could also go a long way toward getting a good rate.

Paying off some of your debt can help quickly improve your credit score because lenders consider how much you owe when deciding how much money to lend you and at what interest rate. Lowering your credit utilization -- how much credit you use compared to how much you have access to -- to below 30% is a good idea, and under 10% is best.

For example, let's assume you have two credit cards with a total line of credit of $12,000. To keep your credit utilization under 30%, you should try to keep the combined total balance to less than $3,600.

Additionally, you may want to consider boosting your credit score by linking other accounts (like a rental payment and utilities) to your credit report. I did this through the Experian Boost tool recently and improved my score by 28 points in just a few minutes.

2. Shop around for a mortgage lender

While improving your credit score can go a long way toward getting a better interest rate for your mortgage, so can doing a little shopping around.

Many potential home buyers don't think about comparing mortgage lenders once they receive a rate quote. This can be a big mistake, though. A survey conducted last year showed that buyers could save up to $2,810 annually by shopping around to find a better mortgage rate.

Let's say one mortgage lender is willing to lend you $350,000 at 7% for a 30-year loan and you're putting 20% down. Your mortgage payments (principal plus interest) will be $1,862 in this scenario. But if you shop around you may be able to find a lender willing to give you the same terms, but with an interest rate of 6.5%. That might not seem like a huge difference, but it translates into a monthly savings of $91 and annual savings of $1,092.

Shopping around could be one of the easiest ways to get a better mortgage rate and could be the difference between a house being out of your price range or fitting into your budget.

Don't bet on interest rates plummeting this year

It's worth mentioning that while home prices are cooling, interest rates could remain elevated. The Federal Reserve says it might cut rates up to three times by the end of 2024, but they'll be minor cuts when they come.

Additionally, mortgage rates are determined, in part, based on the demand for mortgage-backed securities. According to a Wall Street Journal analysis, investors aren't eager to snatch up bundles of mortgages right now. This means that even if the Fed cuts rates, it might have a smaller impact than home buyers want.

This makes improving your credit score and shopping around for a mortgage rate all the more essential when buying a home. While you don't have control over the housing market or the Federal Reserve, you can control your credit score and which lender you choose.