When is the Best Time to Buy a House?

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by Jack Brewer

Updated

Homes are seasonal items for sale, like fresh vegetables or winter clothes. In the same way that those items have a good or bad season for buyers, there’s also a best time to buy a house versus a bad time to buy.

How do you know which is which? Is now a good time to buy a house, or should you wait?

While the stakes are high for homebuyers, there’s a lot you can do to understand the market before you take your first steps.

Factors Determining the Best Time to Buy

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What goes into deciding when to buy? Look at a few things in particular:

  1. House prices. The average price of a home in the US generally increases steadily every year. However, the prices in specific areas fluctuate a lot more than the national average.
    Check the FHFA’s house price index where you want to buy and see what the trend is like. For example, average house prices where 11% higher in November 2020 YOY from November 2019, while home prices increased only 5.3% from November 2018 to 2019. House prices nationally have been growing faster since mid-2019 than in the period from 2012 until 2019.
  2. Mortgage rates. Every year mortgage rates vary based on economic conditions and federal monetary policies. The Fed sets the rate at which they give loans to banks, which plays a large part in determining the mortgage cost charged to you when you apply for a loan. Low mortgage rates tend to reduce the cost of taking out a mortgage in the long-term. Check out mortgage rate trends to see what the current mortgage rate climate is like before you buy.
  3. Market competition. The more buyers in the market compared to sellers, the harder it is to buy what you want for the best price. Tight housing inventory means there are either too many buyers in an area or not enough sellers to meet the demand.
    High competition forces buyers to make decisions faster, bid with other buyers, and pay a higher price for properties.
  4. Mortgage application standards. Mortgage lenders may tighten their criteria for borrowers if there are too many mortgage applications in an unstable market environment. In 2020, some mortgage lenders increased the FICO score requirements for borrowers by as much as 100 points to reduce the risk of borrowers defaulting on loans.
  5. Your personal situation. Until you can afford to buy a house, you shouldn’t make any offers, no matter the market conditions. Taking up a side gig like making money on eBay or selling things at a flea market helps many home buyers get there faster.

Each of these factors can be affected by predictable things like the weather in a particular season or unpredictable things like a global pandemic.

Best Month to Buy a House

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While there are a lot of opinions about when to buy throughout the year, Zillow published a report pointing to the best months to buy a home depending on what you need.

Note: These recommendations are based on national averages. Specific markets may have different home buying seasons.

Best Price: November

According to buyer data from 2016, only 15% of buyers paid over the asking price for homes purchased in November versus 26% in April.

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November represents the beginning of winter, a typically slow buying season. Because there are fewer buyers looking for homes over the winter, sellers often accept lower offers or price homes lower than they would in peak buying seasons.

Best Selection: April

A large portion of home sellers put their houses on the market in early spring. March is common month to see more houses on the market, but by April there is a usually a large inventory of homes for sale.

If you’re looking for the most options, late March and all throughout April are good times to look.

However, this is also traditionally one of the most competitive buying seasons, meaning you may have to look quickly and compete with more offers on a home you’re interested in.

Best Mix of Price & Selection: August

Home buying seasons usually peak in late spring or early summer and begin to relax heading into autumn. In August and September, sellers may reduce home prices for a quicker sale.

At this time, there is likely still a high enough inventory to give you more options, but you also have a better chance of paying a lower price than you would in the spring.

Best Time Financially to Buy a House

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Buying a home is one of the largest financial decisions you’re going to make in your life. Don’t even start looking at listings until you’re ready.

Pay attention to your:

  • Credit score
  • Cash savings (down payment, closing costs, other costs)
  • Debt to income ratio
  • Current income and future income potential

Before you buy, you should be certain that your income is stable enough to afford the cost of your mortgage payments and maintaining the home over time.

If you have a lot of debt or inconsistent income, it may be difficult to meet your mortgage obligations.

Tactics for Success

It’s also easy to underestimate just how much you need to save up before you can afford to buy a home. Typical closing costs for a mortgage cost around 2-5% of the loan amount. In 2019, the average closing costs for single-family homes were $5,750.

Closing costs are paid upfront, along with a down payment of between 6%-12% for first-time homebuyers.

If you’re in a stable living situation that’s unlikely to be disrupted over the next 3-5 years, you don’t need to feel the stress to buy a house right away.

Take your time to wait for ideal conditions in your personal finances and the market generally. That said, high paying second jobs can help speed up the saving process for a home.

Tip: Get a mortgage pre-approval as soon as you’re seriously interested in buying a home. Pre-approval gives you a solid idea of how much you can borrow so you can search realistically.

Best Economic Conditions for Buying a Home

Over the years, the economy grows and shrinks. The housing market changes with the economy, getting better or worse depending on what’s happening within the country at large.

The best market conditions for buying a house are usually when the economy is stable and the housing market is just beginning to grow.

New growth indicates a lot of room for further improvement. Buying early in that cycle means your property will increase in value, causing your equity to grow without you having to spend another dime on the house itself.

Is a Recession a Good Time to Buy a House?

When the economy is down, the real estate market usually goes down as well. Because the job market is less stable and there’s not as much money moving around, there are fewer people buying their first home or upgrading from their existing home. This means less competition to buy, but also fewer homes on the market.

A recession can present an excellent opportunity to buy a house for a lower price at a favorable interest rate.

Buying a personal home during a recession can be a great decision if you’re financially prepared. If you’re purchasing a property as an investment, a recession may not be a good time because the market may continue to crash, and it may not recover.

Tip: Check your finances before buying during a recession. Mortgage lenders often have stricter standards during recessions, so keep a close watch on your credit score and control your spending.

Should You Buy a Home When the Market Is Strong?

Strong markets tend to be seller’s markets. If at all possible, it’s best not to buy during a seller’s market. You may pay a higher price for your new house and you may face a lot more competition against other buyers.

Tip: If you plan to buy during a strong seller’s market, try to stand out as a buyer. Write a personal letter to the seller that emphasizes what makes you a good buyer.

Include a personal statement about why you’re buying, reassurances that you’re serious about buying this specific house, and an offer to close as soon as possible.

Buying a House in 2021

Mortgage rates in late 2020 and early 2021 were historically low. However, mortgage rates are beginning to increase again, going from 3.08% to 3.23% for a 30-year fixed-rate mortgage.

Even with mortgage rates set to increase steadily as economic conditions are expected to improve throughout 2021, home prices are still predicted to increase in 2021 at similar rates to 2020, meaning slight increases below 1%.

Together, this could mean home affordability may decrease in 2021, but likely not by a significant amount.

The largest market factor likely to change in 2021 is inventory.

With construction likely to restart and a wave of home foreclosures expected as Covid-19 relief efforts run out, there may be a large increase in homes available for purchase, potentially swinging it closer to a buyer’s market from the seller’s market going into 2021.

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About the Author

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Jack Brewer is passionate about all things personal finance, and enjoys testing out new side hustles and investing strategies.