On one hand, housing prices are falling and there is economic signal that they will continue to do so as consumer demand slows. On the other hand, interest rates are way higher.
Incorporating these factors, and other factors I may not be enumerating here, how does one assess when the optimal time to buy a house is, mathematically? Thank you!
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Honestly, there is no perfect time to buy a house based purely on math. There is no algorithm to predict the best house for you or what you should pay for it. It's a huge decision that ultimately is a personal one based on the needs of your life at that time and your perception of your future needs. Yes, numbers matter too, but the decision to pull or not pull the trigger on putting an offer in for a primary residence is an emotional one. If interest rates are very low, the prices will be inflated and vice versa. Buying a house as a primary residence is a long term decision. If you find a house that meets your needs, in a neighborhood you want to be in, that you can afford based on your current budget, then it might be the right time to buy that house. Barring any unforeseen circumstances, if you can't see yourself staying in that house for at least 5 to 10 years, it's probably not the right time to buy. Obviously, worst case scenario would be to buy at the peak of the market and then be looking to sell when the market corrects. But, long term, building equity is not a bad thing.
Personally, I would rather buy at a lower price and higher interest rate because if rates come down, you can refinance down the road, but you can't renegotiate your purchase price in five years.
amen
Depends on how you look at your home. I view it as a cost, and if I find a house that I like that allows me to stay at or below my budgeted housing costs, then I'll probably pull the trigger soon. We aren't there yet, because a bunch of homeowners still think their house is worth what it was in 2021. A lot of people think about their house as an investment, especially if real estate is your full time job. Really hard for me to tell you what to do there. My gut says the market is going to have to drop 20-25% to reflect interest rates, but that will take time. And rates could drop six months from now (I wouldn't bet on it, but they could), and prices don't have to drop as much. It's a bit of a crapshoot.
I think the only caveat to those estimated drops is that in certain markets, the demand is so great that it offsets the expected price drop due to the increase in interest rates. Personally, I do think that this is largely due to what you said about people thinking their houses are still worth. But, the overall lack of inventory on the market does have an impact and is forcing buyers to 'overspend' today with the thought of refinancing down the road. Again, this is where emotions on both sides play a role in the decision making process. When it comes to the housing market, trying to time the market is impossible because it usually takes 45-60 days for a contract of sale to close. So, by the time you realize that we hit bottom, the market today is already increasing and you already missed the bottom.
You're absolutely right on supply/demand right now and the effect that will have on prices in the short-term. I'm seeing it in my market right now where people are just saying "screw it, I need to buy a house" and are overpaying because there is just no supply of good homes. The opposite though is true of less desirable homes. They are just sitting there for months with no activity because a buyer might be able to convince themselves to overpay for a good home right now, but can't with a bad home. Very curious to see what supply does in the next 12-18 months because that is going to dictate how far home prices fall.
Good discussion here so far. But one of the things that I'm not seeing mentioned is that the market conditions are all over the place depending on location. I moved to NYC over the summer from the west coast. The NYC market is still fairly active (some price points more than others) while my friends on the west coast are in markets that have come to a complete standstill. I have two west coast friends that have their respective homes for sale and they are lucky to get 1 showing/week, homes have been sitting for weeks. So a lot of your decision will depend on your local market.
Buy a house when you want and can afford a house, period end of story
Few questions you need to answer:
- How long do you plan to own it? Less than 3-4 years, probably not worth it as closing costs and then the sales commission when you look to sell will hurt you
- Is it in a historically strong market thats stable? Think top 25 MSAs
- Did pricing go up 3x or 30% in the post-covid era? If 3x, think Austin, Boise, then you are more likely to see a decline compared to LA/DC/NYC.
If the above questions are in your favor, then the best time to buy real estate is yesterday, the next best time is today. Sorry its a cheezy line from realtors but sadly true. New household formation is well exceeding construction starts. Even with rates the way they are, housing prices are still at 2021 levels in core markets.
I'm looking at buying now, The question im struggling whats the right price incorporating the refinance optionanality and economic uncertainty. To me buying above a 2016-2018 purchase price with rates double from that period is overpaying.
Ideally, 10% - 20% below 2018 purchase price feels right to me, but given lack of inventory and type of place 10% lower probably more realistic. Feel that mortgage rates will come down by end of 2023 / early 2024 and spring buyers will start to underwrite to that
Be curious to people's thoughts feel like 20% off 2018 levels is a no brainer, but even 10% to flat to 2018 levels is a pretty compelling with an ARM imo.
I general expect Mortgage rates to peak by Q1 with the Fed pausing. If inflation gets worse, your mortgage gets inflated away and still 5 to 7 years to find a refi lower. If we go zero bound then your current monthly payment gets cut in half and frees up your cash flow.
I think it should drop to 2019 levels. Rates are almost double, but I'll give you credit for demand shifts due to COVID or whatever. Problem is that today a $550K house in my market is the same monthly payment as an $800K house last year. Tell me how prices don't fall significantly if these rate levels hold.
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