Is Now the Right Time to Buy a Home?

by Maurie Backman | Updated July 19, 2021 - First published on March 24, 2021

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A man and woman looking through the door of a house held open by a realtor.

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Thinking of becoming a homeowner? Here are some points to consider.

Buying a home can lead to a world of financial stability. Rather than spend money on rent -- money that goes toward paying off somebody else's mortgage -- you could instead sink that cash into a home of your own that could, in time, increase in value. Owning a home also means getting to tap its equity (the portion of that property you own outright) when you need money in a pinch.

Because mortgage rates spent the latter part of 2020 and early part of 2021 sitting at or near record lows, there's been a huge rush to buy homes over the past six months. But should you run to buy a home today? Maybe not.

Rates are on the rise

There was a point recently when it was more than possible to lock in a 30-year mortgage at an interest rate of roughly 2.7% to 2.8%. Nowadays, the 30-year mortgage is sitting at roughly 3.15%, and while that's still a great deal on a historical basis, it's not nearly as competitive a rate as 2.8%.

Of course, there are other loans you can look at to bring your rate down. For example, today the average 15-year mortgage is sitting at a little over 2.4%. That's an extremely competitive rate, but it comes with a much higher monthly payment than what you'd have with a 30-year loan.

Mortgage rates managed to hold pretty steady from the summer of 2020 through January of 2021, but in February, they began climbing. However, rates are starting to taper off at this point, so we could see them creep back down in the latter part of March and April. As such, sitting tight for just a bit could help you hit that sweet spot where rates drop to even more attractive levels.

Inventory remains tight

Given that today's mortgage rates are still competitive in their own right, the fact that they've risen alone is not a good reason to stay out of the housing market. A more compelling argument for waiting is the fact that housing inventory continues to be extremely limited -- an issue that's frustrated buyers for months.

There were nearly half as many homes for sale at the end of February 2021 compared to where inventory sat in 2020. In fact, there were roughly 207,000 fewer homes listed for sale during the first two months of 2021 compared to the average number for the same time period over the past four years.

Not only does limited housing inventory make it more difficult to find a suitable home, it also drives home prices up. In January of 2021, for example, home prices were up over 10% compared to the previous year, and in February, the average listing price reached an all-time high of $347,475.

Limited housing inventory sets the perfect stage for bidding wars -- a scenario where prospective buyers outbid one another in the hopes of getting an offer accepted. It's a great spot for sellers to be in, but a costly one for buyers.

It's for this reason, combined with rising mortgage rates, that now may not be the right time to buy a home. Even if rates don't drop back down over the course of the next month or so, housing inventory is likely to open up as pandemic-related concerns begin to wane and warmer weather kicks in. In fact, spring has historically been a peak season for new property listings, so while March may not be the ideal time to buy a home, things could look different in April.

If you're interested in buying a home, a good bet is to keep tabs on your local housing market to track inventory -- and to also pay attention to how mortgage rates are trending. While you may fare well buying a home in the next few weeks, buying in the next few months could be your ticket to a lower purchase price and a less stressful house hunt on the whole.

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