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With the dramatic changes that took place in the American housing market in the late 2000s, it should seem obvious that real estate is not a predictable industry. However, there are read-able factors that can help you determine if now is a good time for you to shop for a home.
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Understanding the Real Estate Cycle
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Most of us will at least vaguely remember the supply-and-demand equation from our economics class, and this is your key to understanding how the cycle works. Job growth, diversity, and quality help fuel the demand for homes, and prices are determined by the ratio of demand to the number of homes available (the supply).
If you look at the history of the real estate market, you’ll see a pattern that fluctuates between peaks of high prices and ruts of very low prices. Generally speaking, this cycle consists of seven years of falling or low markets followed by seven years of rising markets. While this does not mean the cycle will always follow a seven-year period, it should still work as a guide for reading the market.
Analyzing the housing market isn’t the only aspect to consider when deciding if now is the right time to buy. You should be aware of multiple factors:
- The time of year
- Whether prices are rising or falling
- What types of loans are being offered
(Are interest rates high or low?)
What Time of Year is it?
While there is no easily identifiable ideal period to purchase a home, timing does matter. For instance, spring and early summer are generally the busiest seasons for real estate and not an ideal period to find a good deal.
Timing should also be partially determined by the needs of your individual situation. If you just started a new job or have children occupied in the middle of the school year, now may not be the right time for you to buy.
Are Prices Rising or Falling?
You can easily find out whether prices are rising or falling by selecting “Market Trends” under More Options on Movoto’s city pages. For national trends, a simple Google search should yield current statistics.
If the economy is falling into a recession, chances are property costs and number of home purchases will also follow suit. You may not want to buy when this is the case, but investing when the market starts to turn around can be a good option. Signs of an improving real estate market include when:
- The monthly costs for owning a home are almost equal to the monthly costs of renting a comparable property
- The total number of homes for sale begins to drop as the number of sales starts to increase
- The rental market gets more competitive
- The job market improves
Movoto’s Buyer Tip:If you’re currently renting, timing is an important factor to consider for deciding when to buy:
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A Basic Rule of Thumb:
During a recession when prices are falling, hold off from buying as long as you can. Whatever amount you pay for your property today, it likely will be worth less tomorrow–so you might as well wait and get a better price.
- On the other hand, you’ll want to buy sooner rather than later when prices are
rising for a better chance to gain equity and increase the value of your home.
Movoto’s Buyer Tip:Keep in mind that successfully buying a home at the peak or trough of the market cycle is virtually impossible. If you fixate on trying to catch one of these points, there’s a good chance that you’ll miss the window of opportunity. |
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Are Interest Rates High or Low?
No home buyer wants to make a purchase when interest rates—or the percent at which borrowers are charged for being loaned money—are high. To ensure a low-interest rate, you should be aware of the current prime rate, have an acceptable credit score, and be able to afford more than the minimum down payment.
As long as the buyer’s credit score is above 700 and their down payment is decent (at least 20 percent), then their interest rate should be relatively low, regardless of the economy. But even better deals can be found when the prime rate is low, which is set based on the Federal Reserve’s assessment of the nation’s top banks.
For more details about mortgages and how to know which one is right for you, check out Question 7,
The Right Time to Buy
The best time to purchase a house is in the winter around the holidays. You might be surprised by this, but the explanation actually makes sense. Around Christmas and New Year’s, everyone is busy with holiday planning–hardly anyone is thinking of buying a new home.
This is good news for the buyer, because it means demand is much lower and therefore prices will be lower. Another advantage to shopping around in winter is that the only type of seller keeping their home on the market is a motivated one. Read: the perfect time to find a bargain.
January is another good time to make an offer. Why?
- Sellers will have just received their bills from Christmas spending and may be feeling financially insecure, meaning they could really use that extra money.
The Wrong Time:
The absolute worst time to buy a house is in late spring and early summer. During this time many families are looking to move while their children are out of school, meaning there are more buyers, competition is high, and prices are typically high
Read on for More Buyers’ Preparation Tips
These components can help you make a more informed decision about when to buy, but you should also pay attention to whether now is a good time for your finances. Our next questions, “What do I need to buy a house?” and “How much house can I afford?,” can assist you with finding out whether you’re financially prepared to buy a home.
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Movoto’s Buyer Tip:
The best day to make an offer for a house is the first Tuesday of the month. This is right after the owner has written his or her most recent mortgage check—for an unwanted property—and is feeling the pain of paying for that property. You should make your offer on Tuesday (rather than Monday) because the owner will be worrying that none of the open house visitors are going to make an offer, and eager to negotiate. |
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