Mortgage rates are rising, while competition for affordable housing remains steep. But delaying your purchase could actually cost you more down the line.

The year was 2021. Mortgage rates were at historic lows and the housing market had its strongest period in 15 years. But some of us, aspiring homeowners, didn’t get the chance to take advantage of the low rates — either because we weren’t financially ready, or because we got outbid by someone with deeper pockets.

Now, mortgage rates are heating up, inflation is making everything — including housing — more expensive, inventory remains low, and some speculate we are in the next housing bubble.

So you may be wondering, “Is now a good time to buy a home, or should I wait it out?”

Let’s find out.

The current state of the housing market

Before we answer the question of whether now’s a good time to buy a house, let’s do a quick recap of what’s going on in the housing market today.

Mortgage rates are rising

The Federal Reserve announced that it will hike interest rates a total of seven times throughout the year to combat high inflation.

Since mortgage lenders use the federal funds rate to set the bar for their own interest rates, Nadia Evangelou, senior economist and director of forecasting at the National Association of REALTORS®, says she expects mortgage rates to continue to rise for the remainder of the year. 

As of the writing of this article, the average interest rate for a 30-year fixed mortgage is 4.72%, according to Freddie Mac — almost 1% higher than they were the month before. 

Although Evangelou says that rates will continue to increase at a much slower pace than they did during March, she points out that “the rising mortgage rates will affect the housing market and hurt affordability, making it even more difficult for some to buy a home.”

Lending standards are getting tighter

According to the Mortgage Bankers Association, the mortgage credit availability index, which measures the guidelines set by most lenders to extend loans to borrowers, was down in March. When the index is down, that means lenders are tightening their loan requirements.

For mortgages, you’d typically need a credit score of at least 620 and a debt-to-income ratio of no more than 43% to get approved for a conventional loan. However, ICE Mortgage Technology’s latest report showed that the average credit score needed to be approved for a mortgage is currently 734, while the average debt-to-income decreased to 38%.

Income requirements have also gone up as well. Evangelou says that a year ago, you needed a household income of at least $61,000 to secure a medium-priced home. Now, you need an income of at least $82,000 to qualify.

Homes are pricier

We sort of already knew this — or at least those of us looking for homes already knew: houses are more expensive now than they were a couple of years ago.

Zillow’s latest data says that the average value of a home in the U.S. is $337,560 — almost 21% higher than last year. 

“We normally expect higher mortgage rates to lower home prices, but this time around we don’t actually expect local prices to drop,” Evangelou says. “We will see a slower home price appreciation, but not a price drop.”

In other words, housing prices will continue to increase throughout the year, although not as sharply as they have in the past few months.

Competition remains steep in certain areas

“Despite rising mortgage rates, demand should remain high thanks to generational demographics, with a massive wave of millennials aging into their prime homebuying years and baby boomers being more active in the housing market than earlier generations,” Jeff Tucker, senior economist at Zillow says.

However, Frank Jacovini, a veteran REALTOR® at RE/MAX, points out that competition will remain particularly steep in the suburban housing sector, while city markets will start to cool off.

He specifically recalls a listing he recently had in New Jersey, which only lasted two days on the market, with multiple offers, and was sold above the asking price. 

“On the flip side, during January I had a couple of listings — two which I would consider first-time buyer properties — that did not sell or get any offers,” Jacovini says. “So, you’re starting to see a little fragmentation in the market. But, in some areas, it’s still red hot because inventory is so low.”

Is now a good time to buy a house?

After reading the above, you’re probably thinking, “This is definitely the worst time ever to buy a house.” And we don’t blame you if that’s your mindset.

In fact, there’s been heavy speculation that we’re entering a housing bubble and that the best thing you can do is wait, so you can take advantage of the lower prices once it all comes crashing down. But Evangelou, from the National Association of REALTORS®, says that’s not likely to happen.

“This is not a bubble. People shouldn’t assume that the current conditions are the same as the ones we had back in 2008,” Evangelou says.

“Back in 2007, there was an oversupply of homes. Now, there are less than 900,000 homes available for sale. This housing shortage is the main reason we don’t expect home prices to drop.”

That’s why if you have a stable job, modest savings, and an excellent credit score, Evangelou recommends locking that rate asap.

And, she’s not the only one.

Jacovini, from RE/MAX, says that, “if you wait, there’s no guarantee there’ll be enough inventory in your price range. There’s no guarantee that rates will be any lower — in fact, they’ll probably be higher, and there’s no guarantee that the prices of homes are going to level.”

In other words, if you’re financially ready, now’s a good time as any to buy a home.

Tips to make your house-hunting process smoother

Get pre-approved before you shop

Let’s face it. Most of us don’t have $400K worth of cash stashed in the bank. So, you’ll most likely have to finance your purchase.

Jacovini says that before you even go looking for houses, first, you need to get pre-approved. Getting pre-approved will not only give you an idea of how much house you can afford but will also allow you to make an offer faster on a home.

If you don’t know where to start your search for lenders, we recommend checking out sites like Credible

Credible is a loan marketplace that allows you to compare offers from multiple lenders by filling out a single form. 

The best part?

It’s completely free, and you won’t get any dents on your credit score, as the company only uses soft credit pulls to get your initial offers.

Hire a real estate agent

Once you get pre-approved, the next step is to get a real estate agent that knows your local housing market to a tee. This will help you narrow down your search to areas that fit both your budget and lifestyle needs.

Besides that, Jacovini says that having a real estate agent can help speed up the homeownership process, as they can put in offers as soon as a property that fits your criteria hits the market, plus they take care of all the negotiating for you.

Broaden your horizons

Finally, Evangelou says to not overlook certain areas, just because they’re not in your ideal circumference, as they may be more affordable and less competitive.

This is especially true for those who are working remotely and don’t need to take into account a commute to the office.

Summary

Things are not looking as bright and shiny as they did in previous years if you’re looking to buy a home. Still, that doesn’t mean you should hold off from buying a piece of real estate. If anything, delaying your purchase could cost you more down the line.

The most important thing is to assess whether you — as an individual — are financially ready to take the next step.

Featured image: ADragan/Shutterstock.com

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