When is a Good Time to Buy a House?

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When Is a Good Time to Buy a House?

The thought of acquiring a house rings a bell in every individual’s mind, especially in the modern day economy. Buying a home is perhaps the toughest decision one has to make as it involves one of the most expensive items you’ll ever purchase at a minimum price that fits your budget. But are you always in the best situation to buy a house, take a look at your current life and your surroundings and ask, “When is a good time to buy a house?”

Why Buy a House Anyway? – The First Question

Before we figure out if you’re ready to buy a house, we need to find out why you want to purchase on, to begin with, some situations it doesn’t make sense to purchase a house only to turnaround and sell it, most likely for a loss. Too often, you will find people saying they want to buy a house, ignoring the question of why, without giving serious thought and consideration, some of them already own big mansions with nothing in them.

Before deciding to spend or borrow a massive amount of money to buy a house, first, you need to know what you want in your life, and if you’re going to buy a house why is that? Some reasons that may drive a person to buy a house, are:

  • Because you want to start a family and owning a house is more stable than renting
  • A home of your own- because you want a place you can call your own
  • Because you always think that buying a home is a good investment
  • Because you want to prevent the possibility of throwing away money on rent every month
  • You want to do what you want with the yard and the upgrades to the home
  • You plan on being in your location for the long-term and would like to feel more permanent

One thing that more often gets in our way when making such a decision is the way we form our beliefs usually comes from what you had growing up. When we look closely, deciding to buy a house is because you felt insecure in your childhood or even early adulthood. Were you in a home or an apartment growing up, did you feel like your home was a long-term permanent place or just another place to stay until you moved again?

Figuring Out When is The Best Time to Buy a House

Buy when you are ready – If you are not sure whether to buy a house or afford it, leave it for some other time. Renting is fine if you don’t know your immediate circumstances and have a long-term plan ready. Because there are fees that come with buying and selling a house if it’s not going to be appreciating much, it doesn’t make much sense to buy a house only to turn around and sell it within a few years. The fees and interest you would have paid would have been higher than just paying a typical rent payment.

When I was newly married we lived in a small 2 bedroom apartment. At the time it seemed like everyone around us was telling us we needed to just jump into a home. Whether it be a house or townhouse, it didn’t matter what it was because the prices of homes seemed to keep increasing.

That was leading to EVERYONE making enough equity to be able to sell and move somewhere that they really wanted to live.  However, let me tell you that was the year leading up to the recession of 2007.

Once the recession hit and prices were falling no one was telling us that we were being dumb by renting and not buying a home. A few years last was foreclosures were happening all around us we found our first home, it was in an average location, but the main selling point was the apartment in the basement. And the price we paid was 40% less than when it was spiking in the hot housing market.

At the time everyone else was buying, we weren’t quite ready to buy, as we hadn’t saved up enough for the down payment and the closing fees, yet if we had bought when everyone else had we might have ended up with a temporary home that we would have had to hold onto longer before we could have made enough money on it to break even and moved to a location where we wanted.

The timing isn’t right for everyone, so be aware of the market, know where you want to live, what size house you need and what your plan is for the house. Will you live there forever (like most of our parents chose to do), or will you live there for a certain time and plan on moving?

When we bought our first house we had a small family and the plan was to move out when the family grew bigger. We had 2 kids when we moved in and we moved out after our fourth was born. For a 3-bedroom house (portion we were living in) it was beginning to feel small.

Don’t wait till you are married – Many people say that they will wait to buy a home when they get married and I disagree with that. The sooner the better, marriages come with a lot of responsibilities and obstacles that may make the decision to buy a house a long term project forcing one to rent one instead.

If you already have a home you can decide if it makes the most sense to continue to live in that house or rent it out or sell it and find a different home. If you are single consider renting out rooms to help you pay off your house quicker or help you save up for your next house.

As we all know timing is a crucial factor; let’s find out “when to buy a house.”

Early in the Spring and Summer

It would seem to make sense that most of the homes are out on the market in the late spring to early fall. The time when the weather is nice outside and yards feel warm and inviting becomes the most frequent time to buy or sell a home. You will end up finding the most inventory available during the warm season but with high demand comes to a high price.

A good barometer for the best time to buy a home is using the calendar, prices are less high, especially in December, that’s because every inventory comes from the owners who have to sell and more willing to negotiate at a fair price. They’ve typically been priced too high in the summer and fall and their prices start dropping to try to keep buyers interested. People who sell their houses in November and December often do so because they have to.

Hence, buyers can take advantage of the situation and cut better deals out of it. When we have bought our 2 homes now we began looking around November and didn’t find our houses until January and we found ourselves moving in March. Both times we offered less than the current asking price and the months before the sellers had been consistently lowering their asking price.

 

When the Interest Rates are Low

Consider this, for every $50,000 you borrow in your mortgage your monthly payment will vary by close to $30 for every 1% increase.

  • For example, for a 30-year loan and you borrow $150,000 at a rate of 4% your payment would be $716.12,
  • If the interest rates were 5% that payment would go up to $805.23,
  • If the interest rates were 6% the payment would go up to $899.33

All for the same amount that you borrowed! You could have a payment 20% much lower when rates are low. Or if you have already made the mistake of buying a home with a higher interest rate, keep an eye on refinancing with a lower rate when they are available.

Keep in mind that this payment is only for the principal and interest, it doesn’t include the property taxes, homeowner’s insurance or any amount needed for improvements and upgrades, and once you own a house it seems there is a never-ending list of projects to be worked on.

It is essential to keep a sharp eye in every corner on the interest rate of the houses. Savvy home buyers tend to stick deals when the prices are low, and they end up saving huge on the sale.

When You are Financially Stable

The best time to buy a house can be when your credit score is strong, and you do not have debts or a lot of obligations. Having a high credit score and less debt can help improve your debt ratio and make it so you qualify for a higher home price as well.

The typical rule of thumb is the housing payment (rent or mortgage) should not exceed 25% of your Gross Income (BEFORE taxes) monthly income or 33% of your Net Income (after taxes) monthly income. For example, if your before-tax income is $4000/month then the housing payment should not be more than $1000/month.

However, with housing prices increasing and rent prices increasing and wage prices not increasing with the same growth, it becomes difficult to stay within those guidelines. So we continue to look at the debt ratio as a whole and plan for under 35% where possible using income before taxes.

Here are some scenarios that can make your financial situation optimal:

  • You got a promotion at work and enough bonus to help with a down payment to buy a house.
  • You fished paying off your loans and debts and have a better debt ratio and savings to buy a house
  • You finished paying off your kids’ college and have an additional amount to purchase a house
  • You receive a family inheritance
  • You got married and want a comfortable home to start a family

When Inventories are High

Just like finding a good deal in the slower months, another good time to buy a house is when there are plenty of houses in the market and sellers are trying to find a better competitive price to take to the market. High supply means the sellers are all competing for the buyers and inventories will tend to move quickly on the homes that are priced appropriately.

Data shows that the highest month to sell a home is in April, May, and June because plenty of families or buyers want to move in before Labor Day and get their kids to school, while the lowest months to sell is in December and November.

When the Economy is Great

Since the economy is doing well, there is a possibility of people doing well too. When consumer income is up, the employment level is favorable and buyers typically have more money or strong credit that can be translated into lower mortgage interest payment hence buying a house is comfortable.

In Final

In conclusion, when is a good time to buy a house? The trick is to weigh the “why and when” questions and come up with a final decision based on your current circumstances. Are you currently in a place where you plan on living for the next few years? If you had to remain in your current location are you OK with that or is there a more desirable location that you would be interested in moving into?

Are you looking to move in the summer or wait out for a deal in the winter months? What are the current rates, are they low enough for you to lock it in or would you rather pay down your mortgage quicker until rates drop again and you can lock them in for long-term savings. Are you financially stable enough to afford a mortgage payment along with the taxes, insurance, and upkeep that goes along with it?

While there are no ‘perfect’ times to buy a house there are ways to see if you are in a good position to buy a house. Be mindful of your circumstances and the housing choices you make because owning a house is more than just having a roof and a place to live.

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12 Comments

  1. Thanks for this article. I would like to have my own house before getting married. Thank you for sharing your thought and pointing out these about when and in which circumstances we should buy a house. But the situation, terms, and conditions regarding these factors can be different in other countries. But still I will have to consider some of these factors when buying a house, it gives an overview. 

    • Fahim, buying a home in different countries can have their own circumstances.  This is primarily for property in the USA but a lot of the ideas of saving and budgeting will be the same everywhere.  Ultimately a home and house can be different ideas, home being where you want to live and a house being a physical building. Sometimes you need to buy a house first before you can decide to make it a home.  Glad to help.

  2. That’s an awesome post. I agree with most of the points you have mentioned in this article. I believe, the very first thing to have is Financial Stability before purchasing the home, otherwise, we keep saving in other necessary stuff later on. In our country interest rates doesn’t vary too much, but definitely, it’s a good point to consider beforehand.

    Thanks a lot for sharing this interesting idea. It has been enormously useful for me and I’m sure it will allow many others to think about owning our own home.

    • Absolutely, which brings up a good point of how stable do we need to be?  Of course, there is those barely scraping by to those living paycheck to paycheck.  But there are also people who feel they either need to pay cash for 100% of the home or at least have a $100,000 in the bank.  Though there are circumstances where that may be necessary, the majority of us would never buy a house if we had to pay cash for it at their current prices.  A good paying job, where you can continue to save money before and after you move into a house is a good place to start.  

  3. Hi! You’re right! Most of the time we don’t take time to make ourselves these questions. Why do I want to buy a house in the first place? I know there are occasions when i’s a good move to buy a house, but there are also occasions when it may not be recommended.

    When to buy is also an important question. Thank you for shedding light on this. Considering November and December can really help us get a fair deal. Thank you very much!

    • Glad we can help bring awareness to why you may want to buy a house and allow us to provide some good options.  

  4. I have owned three different houses.  My first house I bought was before we had our first child.  It seemed large enough for the two of us, but when the second child arrived the house became rather small.  We moved right down the street to a much larger house in a “new section of the neighborhood”.  

    One of the BIG MISTAKES we made is that the neighborhood was still being built.  We never even looked at the plans for the entire neighborhood.  The house we bought was at the quiet end of a street, until Phase III of the neighborhood was built.  When the new MAIN ENTRANCE to the neighborhood was put in our quiet street became the main thoroughfare for half the development!  No more quiet street in the morning or the evening as everyone raced by our house coming and going to work!

    It is hard to know when you are buying a house in a new development where the traffic will go but I would advise taking a look at the entire plat maps and at least anticipate what the traffic pattern might be.

    I bought my current home with one thing in mind, who might buy my house someday.  While most of my generation was buying McMansions, I bought an old Ranch Style house.  Why?  I looked around and knew that a Ranch house had one significant advantage over a McMansion.  That advantage is simple, single floor living, who wants to walk upstairs as they get older?

    If I had to place an order of things to look for I guess it would be:

    1) Finances

    2) School Districts

    3) Traffic Pattern

    4) Demographics (with an eye towards who will want to buy the home in ten or twenty years).

    What do you think of my list?

    • Oh what an experience!  Especially with the new neighborhoods.  I have a family member who wanted us to move into a new neighborhood with them.  It was new construction, and while the houses seemed nice,  no one put in a lawn for over a year.  Fences were scarce and when they did put them up they would all be mismatched.  I don’t think they paid to put up a fence and just let their neighbors do it,  which took another year or two.  

      By the time all the houses were built half of them sold and moved on.  Great list of things to look for.  Neighborhoods is #1 and traffic is up there for the interior the living layout can make or break it.  

      The apartment we lived in before we bought the house wasn’t the best.  When we bought a house we were looking for a specific type (not really taking into too much consideration for the neighborhood).  We wanted a basement rental, with only a few in our price range we could find.  We ended up buying a split level (not ideal home) that was on a major street that needed some work done on the outside, but the inside was mostly updated.  

      For a family with little kids it worked and helped up build equity and rent the basement.  Then we moved to a quiet neighborhood with low traffic and bought a ranch home.  Such differences in neighborhoods and home styles but each time we have something specific in mind, for our first home it was the type of home and for our next home, it was the location and neighborhood.  

  5. Just wanted to comment on your post when is a good time to buy a house? If only we all knew the answer to that we would be a lot better off! But seriously you raise some good points. I was caught in an earlier recession in the UK back in the early 1990s when interest rates went from 5 to 15% and house prices dropped by 30%.

    I can tell you it took me over 10 years to recover! For anyone wanting to buy I recommend they go through your post and answer the questions you pose. For the majority of people they are buying a house as it will be where they live and therefore a long term investment.

    As you say if they can get a good low interest rate and have it fixed for a period at least that is piece of mind. I do encourage anyone to get on the housing ladder at the earliest opportunity but of course it has to be affordable. So look at the worst case scenarios like interest rate rises and make an informed decision.

    Just out of interest what are the costs involved in buying and selling in the States? I ask because actually in the UK the buying costs are quite low which I hadn’t realised until I recently bought a property in Spain and the costs were 3 times as much!

    • Oh how true.  Especially how the real estate market can swing with rates or just home prices.  

      Currently in the US typically the ‘closing costs’ are around 3% of the purchase price of the home.  For selling you typically don’t have any fees besides a realtor agent fee which can be between 1-6%, though there are a lot of new companies trying to push a low flat-fee agent fee of $2000.  

      I need to re-address the emphasis of refinancing, especially if you bought your home when rates were high.  Currently, rates are around 4%.  When we first bought our first home it was almost 5% and when we refinanced a few years later it was down to 3.5%.  Our payment went down about 15% (removing mortgage insurance as well due to appreciation), and we were applying more to the principal with each payment than before too.  

      I’m interested in the costs of buying internationally.  What are typical transaction costs for buying and selling in the UK and Spain? 

  6. Hello Marc, 

    Overall a very interesting topic and one that I believe people are eager to learn more about and discuss.

    * It might be interesting for your readers if you discuss (or maybe this is coming in a future post) the advantages and disadvantages of refinancing.  

    * Another thing that plays a large role in whether or not one buys or rents is one’s occupation.  Are you in a job that has you settled in one location for the foreseeable future?  Or, is there potential for job relocation within the same company, changing to a new company.  If we could choose where we want to live and remain there for the remainder of our lives, then buying vs. renting would become a much easier decision but unfortunately, this isn’t always the case. 

    * Buying a second or third home and renting out your first home also comes with a risk factor.  The challenge is finding renters who are “good renters” that you can trust and that will take care of your place.  The same goes for finding a good manager to manage your property, especially if you are living in different state or even in different country.  

    I hope that my comments have been helpful.  

    All the best.  

    • Good point. There needs to be a discussion on your purpose of buying the home and if and when refinancing makes sense.  Of course with renting a home there are advantages of having it near where you live where you could be the property manager or other times when it only makes sense finding a good professional property management company for you.  I’ve done both there are pains and benefits to both.  Thanks for the comment.

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