Is Now a Good Time To Buy a House?

First, the good news: The average 30-year fixed-rate mortgage rates are declining, thanks to indications of cooling inflation and expectations of a future interest rate cut by the Federal Reserve.

But mortgage rates are still twice what they were just a few years ago, when they reached near-record lows (PDF), according to the U.S. Department of Housing and Urban Development.

Despite high interest rates, housing prices haven't correspondingly reduced. In Seattle, housing prices peaked in May 2022, according to data tracked by the Federal Reserve Bank of St. Louis. While home prices have come down a bit since then, they were still about 55% higher in June 2024 than in January 2020.

Key Considerations for Prospective Homebuyers

• The market outlook for home buyers may not be ideal now, but there's hope on the horizon. 
• Homeownership affordability is at historic lows, according to HUD, due to high mortgage rates, limited housing supply and high housing prices. 
• Mortgage rates continue an unsteady decline. However, new inflation data or other vital information can influence rates, which may increase or decrease in response.
• Local market conditions can have a significant effect on whether it's a good time to buy a house.

Why Mortgage Rates are High in 2024

Buying a House Now: Pros and Cons

Pros of Buying a House Now

• Home values still rising: If you're concerned about missing out on today's prices, you may hope to hop on the housing escalator. Despite higher mortgage rates, limited housing supply has led to still-rising home prices.
• Interest rates aren't a factor for all-cash buyers: If you're going to pay for your house in cash or have a significant down payment of 50% or more for the condo, house or land you plan to purchase, interest rate trends are less of a consideration for you.
• You might be able to refinance later: If you're looking for your "forever home," you know that while rates may be high now, you might be able to refinance into a future, lower-interest-rate loan.
• More homes are coming on the market: If you've been looking for a while, you may be encouraged to note that in 2024, new listings are increasing (PDF) year over year. February 2024 featured the most significant annual gain in listings since May 2021, according to the National Association of Realtors.
• Rent is increasing. While a 30-year mortgage principal and interest payment will remain the same, rent will continue to increase. In Seattle, rent increased 5% between June 2023 and June 2024, according to the U.S. Bureau of Labor Statistics, and significantly increased over the past 20 years, according to economic data tracked by St. Louis Fed.

Cons of Buying a House Now

• Higher interest rates limit borrowing power: According to the National Association of Realtors report, the typical family cannot afford to buy the median-priced home. That's because their income is below the qualifying threshold. The affordability factor is real. 
• Higher down payment needed: When housing prices are high, like they are now, you need to gather more funds for your down payment for a house.
• Limited house supply: If you want a new house, you'll have less selection as fewer homeowners put their houses on the market, and fewer builders are constructing new homes. At the beginning of 2024, housing starts were down 24% since April 2022.
• Higher monthly payments: Due to high home prices and high interest rates, your monthly payments could be budget-busters, especially if you can't put much down.
• Higher income needed to qualify: When home prices and rates increase, you'll likely need more income to qualify for a loan. The bank or credit union calculates your debt-to-income ratio when you apply for a loan. If the home's monthly mortgage, interest, taxes and insurance payments consume too much of your take-home pay, it may be harder to get approved.

Rising Mortgage Rates and Buying a House

Rising mortgage rates make buying a home more costly. If rates are rising, you might want to lock in a rate as soon as possible or wait until rates begin to decrease.

When mortgage interest rates rise, house prices typically decline as sellers can't find buyers to purchase homes. However, prices continue to increase in some areas — like Seattle — due to a lack of housing supply.

In part, this is because fewer homeowners are trading up into different or larger houses. A 2023 Realtor.com survey found that low mortgage rates have led to 82% of sellers feeling "locked in" to their current home. More than half of those sellers surveyed said they're waiting until rates come down before selling their homes.

Buying a House When Rates Are High

To qualify for a loan when rates are high, you may need to show proof of more income or shop for a lower-priced home. For example, if the DTI required by your lender is 28% to 36%, then a $500,000 house with 3.5% down would require about $165,000 in income when rates are at 7%. The same house with the same DTI and 3.5% down would require roughly $138,000 to qualify when rates are at 5%.

If rates are high, products such as an adjustable-rate mortgage typically offer lower initial rates than a 30-year fixed-rate mortgage. After a set period, such as five, seven or 10 years, the rate changes, following broader interest rate changes.

An ARM can be an option if you plan to live in the home for just a few years, pay off the entire mortgage before adjustment or refinance your mortgage into a fixed rate, 30-year loan.

However, if you can't pay off or refinance your ARM, you could be left with unsustainable mortgage payments.

Also, even with less inventory on the market, high-rate periods could deter other potential buyers, so you might face less competition and fewer bidding wars.

Falling Mortgage Rates and Buying a House

If mortgage rates drop, more buyers may enter the market to compete for homes. Historically, a rate drop means it's more affordable for builders to start constructing new homes, too.

Declining mortgage rates may help buyers afford newly built homes, and can also help those who purchased a home recently to refinance for a lower rate.

Once mortgage rates decrease, the Congressional Budget Office predicts a real estate investment boom. Lower rates are expected to increase demand for housing and construction loans alike.

More new home construction increases the supply, reducing price pressures for buyers competing over available houses on the market, according to the National Association of Realtors.

Example: How Much Does It Cost to Buy a House Today?

When interest rates are higher, the monthly house payment is higher.

*Rounded to the nearest dollar; mortgage and interest only; does not include property insurance, private mortgage insurance or property taxes.

When house prices are higher, the amount of your downpayment increases with the percentage. Here are some examples:

Market Factors That Affect Housing Affordability

Interest Rates

Higher interest can limit your ability to afford a home's monthly payment comfortably. High interest rates are a main reason homeownership affordability remains below historical norms.

Meanwhile, more people who bought homes in the past received historically low interest rates. Even if they'd like to trade up to a larger home as their family size increases — or downsize to a condo after the kids move out — they might feel trapped in the current home due to the great rate.

Housing Supply 

Nationally, the market favors sellers. In June 2024, about 4.1 months of housing inventory sat on the market, which is "inching closer to a buyer's market," according to the National Association of Realtors. When homes go unsold, sellers are more willing to negotiate the price downward, giving buyers the upper hand.

But less new construction is for sale — and fewer builders want to take on debt and try to sell a home in a high-interest rate environment.

Housing Prices

Higher-priced areas of the country may keep a new home out of reach for many people. In contrast, locations with lower-priced average home values can provide an affordable house payment almost any time. 

Compare the July 2024 prices in these cities, according to Zillow:

• Sunnyvale, CA average home value: $2,071,532
• San Francisco, CA average home value: $1,292,126
• Los Angeles, CA average home value:  $972,829
• Seattle, WA average home value: $872,515
• Austin, TX average home value: $544,638
• Spokane, WA average home value: $395,323

Of course, it's also possible to snag good deals within your range. You may need to concentrate on looking for starter homes and condos or look for a home outside of a major city if interest rates and market forces are creating higher costs.

For example, you may find a home significantly below Seattle's prices in Puyallup, where the average home value is $566,586. The average Tacoma home value is $492,151, and the average Bremerton home value is $469,053.

Your Local Market

Review the local market with a real estate professional to find a home within your price range. You don't want to face escalating prices pushing you outside your budget's comfort zone.

For example, in Washington, in June 2024, new housing units with authorized building permits were about half what they were in August 2021. In other words, not many new homes are being built, and builders often offer incentives. So, current local market conditions could make new-home purchases particularly appealing.

Buyer's vs. Seller's Market

You may see a "buyer's market" or "seller's market" in some areas. This term suggests who is favored in current economic conditions.

A buyer's market indicates plentiful housing supply, slow home sales and many price cuts. In these areas, homebuyers can shop from a better selection of homes and negotiate lower prices. Buyers can even ask sellers to pay some or all of their closing costs.

In other areas, including the Seattle Metro area, some lenders consider it a seller's market due to low housing inventory, few price reductions and quick home sales. In Seattle, only two months of inventory sit on the market compared with the national average of four months.

In areas like Seattle, you may have a more challenging time getting a seller to lower a home's price. You may still face a bidding war, particularly for a top property.

Personal Factors That Affect Housing Affordability

While it's tempting to try to time the market, national and regional factors can't necessarily determine if it's a good time for you to buy a house. Now might be a good time if you:

• Found a reputable mortgage lender with interest rates that work for your budget.
• Have a rough idea of how much money you'll qualify to borrow — and it's enough for a home you'd want to buy.
• Have an excellent credit score and have collected a down payment of 3% to 5% (or more) for the house you hope to buy.
• Have 3% to 5% of the estimated home price to pay for closing costs (appraisals, loan origination fees and other costs).
• Calculated the monthly payment (including principal, interest, taxes and insurance) and determined it doesn't total more than 30% to 40% of your income.
• Feel financially prepared for homeownership, including the ability to pay for ongoing house maintenance. 
• Plan to stay in the home for at least a decade or longer — long enough to weather any ups or downs in the broader interest rate or real estate market.
• You're moving from a high-cost area to a low-cost area and can sell your home before you buy.

A mortgage preapproval lasts 90 days, which gives you a window to look for a property within your price range. If you don't find much that appeals to you in the first 90 days, you might wait to apply for prequalification again.

FAQs About Buying a House Now

Do High Interest Rates Hurt or Help My Ability To Buy a House?

Overall, high interest rates increase your monthly house payment, making it more difficult to buy a house. That's because the interest charged on your borrowed amount increases if your rate increases. No one can predict future housing market trends. But in general, over the past 30 years, home prices may take temporary breathers, then keep climbing — particularly in popular states like Washington.

Should I Sell My Home Before Buying a New One?

In the present market, most people sell their current home before buying a new one.

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