Is it the right time to buy a home?

Natalie Taylor, CFP®, BFA™
Is it the right time to buy a home?

The past couple of years have been rough for first-time home buyers. Limited housing inventory, high demand and increasing prices have made it difficult for buyers to find the home they want at an affordable price.

Now that the housing market is finally slowing down, you may wonder if it’s the right time to buy. If you’re eager to buy a home but want to be strategic on the timing, this article will help you decide if it's the right time to buy. 

Can You Time the Real Estate Market?

Timing the real estate market is only possible up to a point, but certain signals will help you make a more educated decision about whether it’s a good time to buy or not. Historically, when mortgage interest rates rise quickly, housing prices fall in response. 

Higher interest rates make your monthly mortgage payment more expensive, and when interest rates rise quickly, demand for homes tends to fall since fewer people can afford to buy a home. As demand goes down, home prices start to fall as well. An economic slowdown can also cause home prices to fall since fewer people can afford to buy. 

While economic conditions matter, ultimately, the best time to buy depends on your financial readiness. You’re ready to buy a home once you have an ample down payment saved and funds for closing and moving costs without having to tap into your Emergency Fund. You’ll also need consistent income to ensure that you're able to pay your mortgage each month. 

When Is the Right Time to Buy a House? 

There’s no perfect time to buy a home, but some economic conditions are more favorable than others. Low interest rates and low prices are the perfect combination for buyers, but it’s rare to get both at the same time. Rising interest rates and higher home prices make it a less ideal time to buy a home since your purchasing power decreases.

For instance, let’s say you’re buying a $500,000 home with a 30 year fixed rate mortgage. If you bought that home a year ago, when interest rates were 3%, your mortgage payment would be $1,686 per month. 

Let’s say you purchased that same home now at an interest rate of 7%. Now your monthly mortgage is $2,661, which is $975 more per month or an increase in monthly cost of more than 57% for the same house. 

Another thing to consider when you’re looking to buy is the state of the economy. Although home prices tend to decrease prior to a recession, there’s also increased risk of layoffs which could make it difficult to commit to a home purchase. There is certainly a risk of recession for the US economy in 2023

Signs It’s a Good Time to Buy

All things considered, it’s a good time to buy a home when you’re financially ready. You’ll know you’re ready when you can afford the down payment, home buying costs, and monthly mortgage payments without tapping your Emergency Fund.

Another sign it may be a good time to buy a house is if your rent is going up. According to, the median monthly rent is $2,002, which is up 8.8% year-over-year. However, rent prices are starting to decline on a state level. 

And it may be time to buy if you’re going through a significant life change. For instance, many people choose to buy a home after they get married, have children, or accept a new job.

Another sign it may be a good time to buy, is when the number of homes listed for sale starts to rise. Typically, when inventory numbers start to rise, the housing market is slowing down and more opportunities open up for buyers. According to the Federal Reserve, there were 347,476 homes listed in February 2022. 

As of October 2022, that number has increased to 753,845 homes. This number is still relatively low when you look at active listings over the past six years, but it shows that inventory levels are beginning  to improve. 

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How to Prepare to Buy a Home

When it comes to buying a home, preparation is everything. Improving your finances will help you secure the best rates and terms on a mortgage, and it’ll help you stay on top of the costs that come with homeownership. Here are the five steps you can take to prepare to buy a home. 

Build an Emergency Fund

An emergency fund is a savings account designed to cover any financial emergencies that come your way. Even a minor setback can cause significant financial problems without an emergency fund. 

As a homeowner, an emergency fund protects you from going into debt due to unexpected home expenses. Aim for six months' worth of monthly take-home pay saved in your emergency fund before you buy a home. 

You can use Monarch to set a savings goal and track your progress toward building up your emergency fund.  

Pay Off Credit Card Debt

Before buying a home, pay off any high-interest credit card debt. Paying off credit card debt will improve your credit score by lowering your debt-to-income (DTI) ratio and decreasing your credit utilization rate. It’ll also free up cash flow, making it easier for you to afford your monthly mortgage payment. 

Build Your Credit Score

Your credit score is one of the main factors lenders will look at when considering you for a mortgage. The exact credit score requirements will vary depending on your lender, but most lenders look for a credit score of at least 620 to buy a house. 

If your FICO score is 740 or higher, you should qualify for the best rates and terms on your mortgage. The best way to improve your credit score is by lowering your debt-to-income ratio, paying your bills on time, and removing any errors or negative marks from your credit report.  

Save a Down Payment

Another way to ensure you get the best rates on your mortgage is by saving up a 20% down payment. That said, there are programs that allow for a lower down payment, especially for first-time buyers.

For instance, FHA loans only require a 3.5% down payment and flexible credit requirements. But if you take out an FHA loan, you will have to pay for private mortgage insurance (PMI) to protect your lender against loss if you foreclose on the property.  

VA loans also don’t come with any down payment requirements, making homeownership more affordable for veterans and active duty service members. However, you will still need to save money for closing costs, moving costs, and nesting costs. 

Get Pre-Approved For a Mortgage

Once you’ve completed the previous steps, you’re ready to get pre-approved for a mortgage. When you get pre-approved, you’ll fill out a mortgage application, and the lender will verify the financial information you provide. Getting pre-approved usually doesn’t require a hard inquiry on your credit unless you follow through and apply for the mortgage, but check with the lender just in case. 

Getting pre-approved can help you see what kind of mortgage you qualify for. It’s a good idea to compare offers from different lenders to see who offers you the best rates and terms on your mortgage. Also, keep in mind that lenders will often approve you for a larger mortgage than will reasonably fit into your budget, so make sure you know how much you can afford to spend each month on your new home regardless of what you can get approved for. 

The Bottom Line

When you’re preparing to buy a home, it’s helpful to pay attention to specific market indicators including mortgage interest rates, home prices in your area, housing inventory trends, and the overall economy. 

But as a home buyer, the best time to buy a home is when you can afford it. Having an adequate emergency fund, a down payment, and a good credit score will make it easier to buy a home. And you can use a budgeting and financial planning tool like Monarch to track your monthly expenses and manage your savings goals. 


Why have homes grown increasingly expensive?

Home prices have skyrocketed over the past couple of years, largely thanks to limited housing inventory. There are more buyers looking for homes than there are homes available, which has led to a seller’s market.

Plus, historically low interest rates mean that more borrowers can afford to buy homes at higher purchase prices. As mortgage interest rates rise and more homes become available, home prices will likely start to drop. 

Will property values decline in the near future?

Home prices have already started to trend downward, and it’s expected that they will continue to fall in 2023. However, home prices aren’t expected to fall drastically like they did in 2008. 

Are we in a real estate bubble?

With mortgage interest rates at record lows and home prices at an all-time high over the last few years, many people began to worry that we were in a bubble, similar to what we saw from 2005 to 2007. However, most economists agree that while housing prices will likely fall, the drop won’t be as severe as what we saw during the Great Recession. 

For one, most home buyers are in a better financial position than they were in 2007. In addition, home builders have been more careful about the pace of construction, so we don’t have the same spike in inventory. 

When should I buy a property?

It’s impossible to completely time the market, and no one truly knows what will happen with the economy. So as a potential home buyer, focus on whether or not you can afford to buy a home.

It’s a good idea to save up a six month emergency fund and set aside money for a down payment first. Then, evaluate your income and financial situation to determine whether you can afford the ongoing costs that come with homeownership. 

Natalie Taylor, CFP®, BFA™ Head of Financial Advice at Monarch

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