Since the crash that coincided with the 2008 recession in the United States, home prices have been in recovery mode. The foreclosure crisis was a major correction, and home prices have soared since then.
Those soaring home prices have coincided with historically low-interest rates for new mortgages, which have helped more people afford more home. But that phenomenon has also led to questions about when to buy a home.
The stock market has trained folks to adhere to the “buy low” philosophy, and when home prices were sagging, plenty of people were buying low. Now that the economy is booming, however, some are left to wonder whether they can time the market and buy a home at the perfect point in time.
Here are some things to consider if you’re trying to time the market and buy a home.
It’s a see-saw
Trying to find the perfect moment to buy a home is tough in this economy. Home prices tend to rise with the overall financial health of the country, which means that when you’re doing better financially, homes are more expensive.
The nation as a whole has been experiencing a decade or so of low mortgage interest rates, which translates into more affordable monthly home payments. After two years of interest-rate increases, the trend in 2019 is downward, which means home loans are more affordable.
A quarter-point difference in the interest rate for a 30-year mortgage on a median-priced U.S. home, however, works out to about $28 per month right now. In other words, if you buy the median-priced home now, as opposed to when rates are a quarter-point lower, it will cost you $28 more per month in interest.
Saving that $28 per month might sound good, but keep in mind that when rates fall, the number of potential homebuyers goes up. More homes are more affordable for more people, and more buyers in the market is favorable to sellers. That means home prices rise.
So while you’re waiting for a more favorable interest rate, home prices are going up.
You can swing and miss
If you’re following the “buy low-sell high” model, you can completely whiff on a home purchase.
If you buy when rates are low, so that you can theoretically afford more home, your home’s price will tend to suffer when rates eventually rise. The rise in rates will tend to remove buyers from the market, which typically put downward pressure on home prices.
That’s usually not a problem if you intend to keep the home for a long time. But if you’re doing the buy-low/sell-high thing as a step-up move, an area’s transition from seller’s market to buyer’s market can easily derail your plans.
The gist of things is that you usually can’t time the market when it comes to a home purchase. When rates are low, home prices rise. When rates are higher, there is less buyer competition, but your monthly obligation will be higher, which means you’ll be able to afford less home.
The good news is that people usually don’t buy homes based on timing. Most folks find a home they love and want to live in and buy it whether or not it costs $30 more or less per month. Trying to time the market for buying a home is typically an exercise in futility, and attempting to save a few bucks each month could end up shutting you out of a home you love.