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Is It a Good Time to Buy a House?

Mortgage rates are falling, but year-over-year home prices are up and inventory remains tight.

By Barbara Marquand  and  Abby Badach Doyle  

Updated Jan 4, 2024 10:08 a.m. PST

Edited by Alice Holbrook Reviewed by Michael Soon Lee 

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If you're wondering whether it's a good time to buy a house, ask this instead: Is it a good time in my life to buy a house?

Housing market trends give important context. But whether this is a good time to buy a house also depends on your financial situation, life goals and readiness to become a homeowner.

» MORE: Should I buy a house? How to tell if you're ready

Here's what to consider.

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The market outlook for home buyers

These are some factors affecting buyers in today's market.

Mortgage rates slowly decline

The average interest rate on a 30-year fixed-rate mortgage was 6.42% annual percentage rate (APR) for the week ending Jan. 4, down nine basis points from the previous week and up 11 basis points from a year ago, according to rates provided to NerdWallet by Zillow. A basis point is one one-hundredth of 1%.

Average weekly mortgage rates

Mortgage type

APR

30-year fixed mortgage

6.42%

15-year fixed mortgage

5.61%

5-year adjustable

7.58%

Averages are for the week ending Jan. 4, 2024, according to rates provided to NerdWallet by Zillow.

Buyers waiting for lower mortgage rates are finally starting to see some relief. The 30-year rate has been falling for the past 10 weeks. That’s welcome news after the 30-year rate hit a peak in October 2023, topping 8% for the first time since 2000. As the economy cools, as many experts predict, mortgage rates are likely to continue a modest decline into 2024.

Since March 2022, the Federal Reserve has raised a short-term interest rate 11 times — up a total of 5.25 percentage points — to control inflation. The short-term interest rate the Fed controls also influences mortgage rates. The Fed didn’t raise rates at its recent meeting, ending on Dec. 13. For home buyers, that’s better news than another increase, but it doesn’t provide the same relief as a rate cut might.

Higher rates shrink buying power because they make home loans more expensive. For example, the monthly payment for a $350,000 house with a 20% down payment would be $1,679 with a 6% mortgage rate on a 30-year mortgage, not including home insurance and property taxes. With a 7.5% rate, the monthly payment would be $1,958 — $279 higher.

You can't influence average rates, so focus on the things you can control:

Shop around for the best deal. Especially given today's higher rates, buyers can save $600 to $1,200 per year by applying for loans from multiple mortgage lenders, according to a February 2023 study by Freddie Mac, the government-sponsored entity that buys conforming loans from mortgage lenders.

Make sure you can afford the monthly mortgage payment. A home affordability calculator can help you crunch the numbers.

After getting approved for a home loan, consider locking in the mortgage rate until the loan closes to protect against further rate increases.

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» MORE: NerdWallet's mortgage interest rates forecast

Home supply is still limited

A shortage of homes for sale continues to make this a tough market for buyers.

In November, there was a 3.5-month supply of homes on the market nationwide, according to the National Association of Realtors (NAR), meaning it would take a little over three months at the current pace for all the properties to sell. Supply is still well below favorable conditions for buyers. In a balanced market with plenty of buyers and properties for sale, the supply would last five to six months.

Compared to 2022, existing-home sales were down 7.3% in November. But short-term, things are ticking up: The number of existing-home sales crept up slightly by 0.8% from October to November. As mortgage rates decline, we’re likely to see existing-home sales strengthen — and more competition in the market.

» MORE: Have seasonal housing market trends returned?

Home prices keep climbing

The national median price for existing homes sold in November was $387,600, up 4.0% from November 2022, according to the NAR.

All four U.S. regions — Midwest, Northeast, South and West — saw year-over-year price increases in November. Here's a regional look at median prices and year-over-year price changes:

Midwest: $280,800, up 4.9%.

Northeast: $428,600, up 4.8%.

South: $351,500, up 3.4%.

West: $603,200, up 5.3%.

"Home prices keep marching higher," NAR chief economist Lawrence Yun said in a Dec. 20 news release. "Only a dramatic rise in supply will dampen price appreciation."

As a buyer, lean on your real estate agent to understand home values in your area so you can make a competitive offer without overpaying.

» MORE: What to expect when buying a house this year

Competition remains steady

Despite rising home prices, demand still outpaces supply. That means buyers should expect competition when making an offer on a home. As mortgage rates fall, competition is likely to go up. If you’re ready to buy, there’s no time like the present to start shopping.

Homes listed for sale in November received an average of 2.6 offers, remaining mostly unchanged from last month (2.5 offers) and up slightly from 2.3 in November 2022. The number of cash offers has also remained steady: More than 1 in 4 sales (27%) in November were all-cash transactions.

However, houses are staying on the market a little longer now compared to last month. Of homes sold in November, 62% of properties were sold in less than one month, down from 66% in October.

Some more good news: Fewer homes are selling for above list price, compared to last month and last year. In November, 19% of homes sold for more than the asking price, compared to 28% in October and 23% in November 2022.

» MORE: Why a new-construction home may cost less than you expect

Your readiness to buy a home

Ask yourself these questions to explore whether you're ready to buy a home.

Prepared to put down roots?

Think about your life goals, relationships and interests. How long can you see yourself living in this location?

Ideally, you'd want to remain in the home long enough for rising property values and your equity to exceed the costs of buying and selling, including real estate commissions and mortgage closing costs. That will typically take several years.

You could also be subject to capital gains taxes if the home appreciates in value and you sell it after less than two years.

» MORE: Avoid capital gains on real estate

How's your job security?

A mortgage is a big commitment and can become a stressful burden after a job loss, so it's not a good time to buy a home if you think you'll get laid off.

Wait until your employment is stable before thinking about buying a house.

» MORE: What happens if you lose your job before closing on a mortgage?

Are you financially prepared?

Here are the three main ingredients to evaluate.

Savings

You'll need money for a down payment and mortgage closing costs as well as for moving and other expenses after you buy the home. The down payment requirements vary by the type of mortgage and the lender. The more you put down, the lower your monthly mortgage payment.

The typical down payment for first-time buyers is 8% and for repeat buyers is 19%, according to an NAR survey of home buyers who purchased a primary residence from July 2022 through June 2023.

» MORE: How to save money for a house

Credit

Lenders generally offer the best mortgage rates and terms to borrowers with credit scores of 740 and above, although you can qualify for a mortgage with a score in the 600s. The options are much slimmer and loan costs can be higher for borrowers with a score in the 500s.

If your credit is marginal, it might make sense to postpone buying a house and use the time to work on building your credit.

The average FICO credit score for closed mortgage loans to purchase homes in the past 30 days was 731, according to mortgage data provider ICE Mortgage Technology.

» MORE: The credit score needed to buy a house

Debt

Lenders look at your debt-to-income ratio (DTI) to help determine whether you qualify for a mortgage. Your DTI is the percentage of your monthly gross income that goes toward monthly debt payments, including housing costs, as well as car, student loan, credit card and other debt obligations. Lenders like to see a DTI under 36%, although it's possible to qualify with a higher ratio. The lower your DTI, the better your chances of qualifying for a mortgage and getting offered the lowest available rate.

The average DTI for purchase mortgages in the past 30 days was 40%, according to ICE Mortgage Technology.