Best Time to Invest in Real Estate: When Should I Buy a House?

Purchasing a house is currently a less than ideal situation. Although mortgage rates have slightly decreased since last autumn, they remain significantly higher compared to the past decade. Additionally, there is a limited supply of available properties on the market. Homeowners who were fortunate enough to secure low mortgage rates are reluctant to move and acquire a higher rate.

Economists predict that even if interest rates decrease as expected, there is little indication that the housing market will improve for buyers in the near future. Jacob Channel, a senior economist at Lending Tree, advises against fixating solely on mortgage rates as it can lead to frustration and stress.

Prospective buyers often dwell on the money they could have saved if they had purchased a house just two years ago. For instance, someone borrowing $500,000 at today’s mortgage rates of approximately 6.6% would pay $1,000 more per month than someone who borrowed the same amount in February 2021 when rates were around 3%. However, the extremely low mortgage rates experienced in 2020 and 2021, including the sub-4% rates that characterized the last decade, are long gone.

Lisa Sturtevant, the chief economist of Bright MLS, believes that mortgage rates will remain elevated. She, along with other economists, expects rates to gradually decline this year but remain above 6% for the rest of 2024. This is an improvement from the fall of 2023 when rates reached 8%.

Several factors influence mortgage rates, such as the interest rates set by the Federal Reserve, which determine the cost of borrowing overnight from other banks. Federal Reserve press conferences also provide insight into the central bankers’ views on the economy. Mortgage rates are further affected by the 10-year Treasury yield, as mortgages are packaged and sold as securities that compete with government bonds.

The Federal Reserve has been hesitant to lower interest rates to avoid a resurgence of inflation. During a press conference on January 31, the Federal Open Market Committee stated that rates would remain steady due to the uncertain economic outlook and the committee’s focus on inflation risks.

Even if mortgage rates decrease, economists believe there is no reason for prospective homebuyers to delay entering the market. The United States is facing a housing shortage, which experts anticipate will keep prices high. Builders, still recovering from the Great Recession, have been slow to construct new homes while existing homeowners are reluctant to sell and lose their low mortgage rates. Additionally, a surge of millennials, who have finally recovered financially from the recession, are entering the housing market, creating more demand than supply. Sturtevant predicts that the low inventory environment will persist until at least 2030.

As mortgage rates rise, housing prices also increase. The S&P CoreLogic Case-Shiller Home Price Index reported a 5.14% rise in home prices nationally from November 2022 to November 2023. Over the past four years, prices have increased by nearly 50% across the country.

Economists anticipate more houses being available for sale in 2024 compared to the previous years. Some turnover is inevitable, as individuals change jobs or relocate to new cities. Builders have accelerated the pace of new housing construction, resulting in more inventory on the market. In historical context, current mortgage rates are not exceptionally high, as rates exceeded 10% for the majority of the 1980s and remained above 6% throughout the 1990s.

However, economists caution that the increase in housing supply will be gradual rather than sudden. Buyers must adjust to the new normal and let go of the desire for low interest rates and abundant inventory. Jacob Channel compares longing for the days of low rates to nostalgic yearning for past opportunities, such as buying Amazon stock in 1999.