When is the best time to buy a house? The flip answer is “whenever you can afford to do it.” But “afford” isn’t as simple as what’s in your bank account right now; a host of other financial and lifestyle considerations should figure into your calculations.
Here are some key considerations
Your Personal Finances
The first, and most obvious, decision point involves money. If you have sufficient means to purchase a house for cash, then you certainly can afford to buy one now.
Even if you can’t pay in cash, most experts would agree that you can afford the purchase if you can mortgage a new home for a monthly payment that is no more than 28% of your gross income. Just keep in mind that you may need to make that payment every month for the next 30 years.
Accordingly, you should evaluate the reliability of your primary source of income. You should also consider your prospects for the future and the likelihood that your expenses will rise over time. Being able to afford a new house today is not nearly as important as your ability to afford it over the long haul.
Needless to say, being able to afford a house doesn’t answer the question of whether now is a good time for you to act on that option.
The Housing Market
Assuming you have your personal money situation under control, your next consideration is housing-market economics – either in your current market or where you plan to move. A house is an expensive investment.
Having the money to make the purchase is great, but it doesn’t answer the question of whether or not the purchase makes sense from a financial perspective. One way to do this is to answer the question “Is it cheaper to rent than to buy?” If buying works out to be less expensive than renting,that’s a strong argument in favor of purchasing.
Similarly, it’s worth thinking about the longer-term implications of a home purchase. For generations, buying a home was almost a guaranteed way to make money. Your grandparents could have bought a home 50 years ago for $20,000 and sold it for five or 10 times that amount 30 years later.
The same can’t be said for buyers of a more recent vintage. Many of them lost money when the real estate market crashed back in 2006, and many more now own homes that are worth far less than the price they were purchased at just a decade ago. If you are buying the property on the belief that it will rise in value over time, be sure to factor in the cost of interest payments on your mortgage, upgrades to the property and ongoing, routine maintenance into your calculations.
The Economic Outlook
Along those same lines, there are years when real estate prices are depressed and years when they are abnormally high. If prices are so low that it is obvious you are getting a good deal, you can take that as sign that it might be a good time to make your purchase. In a buyer’s market, depressed prices increase the odds that time will work in your favor and cause your house to appreciate down the road.
Interest rates, which play a large role in determining the size of a monthly mortgage payment, also have years when they are high and years when they are low. Obviously, lower is better.
The seasons of the year can also factor in to the decision-making process. If you want the widest possible variety of homes to choose from, spring is probably the best time to shop. “For Sale” signs tend to spring up like flowers as the weather warms and lawns turn green.The reasons are obvious, especially when you consider families waiting to move until their kids finish the current school year.
If you want sellers who may be seeing less traffic – which could make them more flexible on price – winter may be better for house-hunting (especially in cold climates). Inventories are likely to be smaller, so choices may be limited, but it is also unlikely that sellers will be seeing multiple offers during this time of year.
Some savvy buyers also like to make offers around holidays, such as Christmas or Easter, hoping that the unusual timing, lack of competition and overall holiday cheer will get a quick deal done at a good price.
Lifestyle Considerations
While money is obviously an important consideration, there are a host of other considerations that could play a role in your timing. Is a need for extra space imminent (a new baby on the way, an elderly relative who can’t live alone)? Does the move involve your kids changing schools?
The Bottom Line
When you factor in all these elements, “whenever you can afford to do it” starts looking more complicated than it first appears to be. But considering them now can prevent costly mistakes and financial problems later. Of course, there is one best time to pounce: When you find the perfect house in the perfect place for sale – at a perfect price.