How Do I Know When It’s The ‘Right’ Time To Buy?
Molly GraceDecember 17, 2019
For months we heard some of the top economic experts warning us that a recession was looming. The yield curve had inverted (whatever that means), a trade war was well underway and economic growth was slowing slightly.
Now, all that hubbub seems to have been for naught. The yield curve – the line graph that shows how much it costs to borrow money for varying lengths of time and is often seen as an indicator of a recession when the cost to borrow money short term rises above the cost to borrow money long term – has reversed course and is no longer inverted. According to Bloomberg Economics’ recession prediction model, the likelihood of a recession within the next 12 months has hovered between 25-30% throughout 2019, down from when it peaked at nearly 50% at the end of 2018.
However, we all know that what goes up must come down, and eventually the economy will experience a recession. The question is, when?
For current and prospective homeowners, the answer to this question is of vital importance. What the larger economy is currently doing has a lot of bearing on how buyers and sellers experience the real estate market, affecting everything from mortgage interest rates to home inventory.
However, as the most recent uncertainty has shown, even the most experienced and knowledgeable economists can have trouble predicting what’s going to happen with the economy.
Still, many hopeful buyers go into the process hoping to time the market in a way that gets them the best deal on a home they like and the best interest rate on their mortgage. But is this an effective strategy? What does the “right” time to buy a house look like for the average person?
What Is The Ideal Market For Buyers?
The economy isn’t static; it’s always experiencing small ups and downs, influenced by the world’s governments, politics, conflicts and individuals.
On a smaller scale, a city’s real estate market is influenced by things like local inventory and the number of sellers and buyers who are actively participating in the market.
If you had a choice, you’d always want to choose to do your house hunting in a buyer’s market. A buyer’s market, as you may have guessed, is a time when the buyers, not the sellers, have the advantage.
What causes a local market to advantage buyers over sellers? It comes down to basic supply and demand: If there are more houses on the market than there are buyers to purchase them, the buyer holds the cards when it comes to negotiations, because there’s no guarantee that a better or comparable offer will come along and give the seller options on who they can sell to. This means that not only are buyers generally more likely to have their offers accepted, but sellers will also be more open to accepting offers that come with concessions or certain contingencies attached.
In a buyer’s market, sellers have to compete with each other to offer the best or most attractive deal, since there’s a limited number of potential buyers. In a seller’s market, where there are a large number of buyers competing for a limited number of houses, buyers have to compete with each other to get the house they want, often leading to bidding wars and homes being sold above asking price.
However, even if you’re in a buyer’s market, there’s no guarantee that you’ll be able to ask for the price you want and all the concessions you want and still get the house. A seller may be in a position to wait out a difficult market, or they may have a property that’s desirable enough that it will receive multiple bids regardless of what the larger market is doing.
If you want to better understand the current climate of the local market, your real estate agent can give you valuable insight. They’ll also help you strategize your offer based on whether you’re in a seller’s or buyer’s market, so you have the best chance of getting your offer accepted.
What Does It Mean To ‘Time The Market’?
Timing the market is a bit more complicated than simply waiting for the housing market to flip from a seller’s market to a buyer’s market – something that can take months or even years of waiting on its own.
When people talk about “timing the market,” they’re generally referring to investing. Investors who try to time the market aim to “buy low, sell high.” They purchase their investments (often stocks or real estate) when they’re available at their lowest price, when the market is at a low point. Then, they hold onto those investments until the market has grown to its peak, when they sell the investment, making a profit.
As a hopeful home buyer, your version of “timing the market” probably looks like waiting for mortgage rates to fall or waiting for a dip in the market when houses become more affordable and sellers are more motivated. Since a house is such a large purchase, it can make sense to wait for a time when you’ll be able to get the best deal. But timing the market is tricky, even for the experts.
Because no one can know with certainty what direction the economy will go at any given moment, it’s very difficult to know when it’s reached a peak or when it’s bottomed out. You could decide to wait until mortgage rates go down, only for them to go up. Or, you could end up waiting years for a seller’s market to pass, all the while making rent payments and missing out on building up valuable equity.
Whether you’re waiting for the best mortgage rates or the lowest home prices, trying to time the market can be a time-consuming and often futile process.
Should You Wait For A Recession?
As we already mentioned, there’s been a lot of talk recently about whether or not a recession will materialize anytime soon. Though recessions are generally seen as bad news for most people (and understandably so), those who are in the market to buy a home may view a more affordable housing market as a silver lining to economic downturns.
Instead of trying to time the smaller ups and downs of the real estate market, some home buyers will, upon hearing forecasts of an impending recession, wait for a larger drop in the market, hoping to score a nice house for a low price.
But while the last recession offered some buyers the opportunity to get into a home at a bargain price, that may not be the case with the next one.
The conditions we are currently in are much different than the conditions ahead of the Great Recession. When the recession happens this time around, many experts predict that house prices won’t fall significantly, according to Realtor.com®.
And even if homes do become more affordable, the economic conditions are a double-edged sword. For example, what if the recession means losing your job? Suddenly, getting approved for a mortgage is much more difficult, if not impossible.
Plus, unless you’re a first-time home buyer, you’ll probably be acting as a buyer andas a seller. So while you may get a good deal on your next house as a buyer, you’ll also have to deal with the difficulty of selling your current house in a down market.
Focus On What You Can Control
Instead of trying to become an expert in macroeconomics overnight, you’ll probably be better off focusing on the factors that are within your control when it comes to home buying.
For example, seasonality affects the housing market in a relatively predictable way. Waiting for the ideal season or month to buy your next home can help you get a better deal than if you were to buy during the peak season.
Generally speaking, home sales activity peaks in the summer. This makes sense – people prefer to move in the summer, when kids are on break and the weather makes the physical task of moving much easier. During the peak season, expect a larger inventory as well as increased buyer competition.
During the off-season – particularly during the winter months – you’ll deal with a smaller inventory, but also less competition from other buyers and more motivated sellers. If you don’t mind not having a ton of options to pick from, you can likely get a relatively good deal on a home during this time of the year.
It’s also a good idea to do a reality check and be realistic about the price range you can afford. If you’re dreaming of a home that’s slightly out of reach and hoping a down market could make the too-expensive homes more affordable for you, you’re probably better off using that energy to consider homes you can comfortably afford right now.
The Real Right Time To Buy
It may sound cliché, but it’s true: the best time to buy a house is when you’reready. The home buying process has a lot of hurdles in it, and requires a lot of preparation on the part of the buyer. Plus, there’s a huge emotional component as well, especially for first-time home buyers. Trying to juggle all that while also closely tracking larger economic trends can turn what should be an exciting process into a huge headache.
Some of the most important factors in the question of “When is the right time to buy?” have to do with your own financial situation: Is your credit score sufficient? How much debt do you have? Do you have a steady, reliable source of income? Do you feel ready for the responsibility of being a homeowner?
While it can be helpful to keep larger trends in mind, you shouldn’t stress yourself too much with timing the market so that conditions are perfect when you start the home buying process. Conditions can change at the drop of the hat, and even the most seasoned of economic professionals have trouble foreseeing just what will happen next. Buy a house when you’re ready to do so, without worrying too much about whether it’s the “right” time to buy.
Ready to buy with confidence? Rocket Homes℠ can get you matched with an agent who will help guide you every step of the way and get you into the home you want.