Ask Brian is a weekly column by Real Estate Expert Brian Kline. If you have questions on real estate investing, DIY, home buying/selling, or other housing inquiries please email your questions to [email protected].
Question. Shelley and Keith ask: Brian. We’re not experts about when to buy a home but things seem to look really good right now. What are your thoughts about the perfect time to buy and how will we know?
Answer. Hi Shelley and Keith. The short answer is that there is never a “perfect” time. However, asking if now is the “right time” to buy is always a great question. And an important question. The key is “when is the right time for you?” The answer is not the same for everyone. Today is a good time for many people to buy a home but maybe not a great time. Making this a good time is that the market is relatively stable since we’ve established a “new normal.” The new normal means inventory is low, prices are appreciating faster than incomes, interest rates are decently low and look to remain that way, as well as the overall economy is looking good. But those are mixed signals.
There are other things to consider. In general, anyone thinking about buying a house should understand historical and current trends. There are key housing market indicators to consider before you decide to buy a home. The stock market changes hourly and daily. Stocks reflect earnings expectations 6 - 24 months in advance but real estate changes slowly. This can be a two edged sword. If the stock market is showing growth, you can expect home prices to go up. Now might be the right time to buy rather than waiting for price increases. On the other hand, if the stock market is going down, prices might not change much over the next year (but aren’t likely to decline). The risk is the economy tanks and you lose your job. So, with the latest unemployment numbers at historic lows and the S&P 500 climbing steadily for six months, the time to buy a home looks “good.”
Remember the housing market has a long history of going through cycles. Buy low, sell high. The major phases of the real estate cycle are the bottom, which is a good time to buy low. The middle is when many investors hold properties to profit from cash flow and homeowners gain appreciated value. The high point is the time to sell when buyers are abundant and before the cycle dips low again. The last low cycle roughly lasted from 2008 to 2011. Since 2012, we’ve been on the upswing and in the middle of the cycle characterized by rapid appreciation in property values. But 2012 was a long time ago. We’re now at a plateau with prices appreciating at a slower pace than 18 months or two years ago. This is another indication that it’s a “good” time to buy but probably not great.
An important consideration is if this is the “right time” for you to buy…
Your personal circumstances should never be overlooked. Especially, if you are already a homeowner and looking to upgrade to your dream home. Because the market is stable, time is on your side. Before jumping into the market, this may be the right time to make and follow a plan to that puts you in the “best” possible personal position to get the most bang for your buck. Or to minimize your home costs for the long term.
If you’re buying your dream home, you should make the most of this opportunity. This could be the time to improve your credit score. Or to save a little extra towards the down payment. As a second time buyer, your equity makes the down payment much easier. But when you buy up, is that equity enough so you don’t have to pay private mortgage insurance (PMI)? You’ll still need 20% down to avoid PMI and maybe you’re only a few thousand short of that. You might want to save a little more to get over the PMI hump.
Besides your credit score, what else can you do to qualify for the lowest interest rate? The minimum is having your debt-to-income ratio below 41%. However, what will it do to lower your interest rate if you pay off a car loan (or other loans) to bring your debt-to-income down into the low 30 percentages? This might be a good time to talk to a mortgage broker to learn what fine-tuning your budget can do to the long term monthly payments on your dream home.
You should also be looking at your personal location. National averages have little to do with the neighborhood you plan to buy in. The old “supply and demand” rule applies to your specific market. Talking to your local real estate agent will tell you if there are bidding wars going on or if listings are sitting on the market for 90 days.
The national numbers began balancing to be fairer to buyers beginning last October and have continued improving in 2019. The inventory forecast for 2019 is moderate, coming in with between a 6-7 percent increase. This improvement is mostly at the mid to higher-end price levels (good if you’re up grading). But not much improvement for entry-level homes (good if you’re selling a starter home).
Shelley and Keith, you should learn more about the trends in your neighborhoods and what your local real estate agents think will happen in the slower autumn and winter seasons. Fine-tuning your budget and credit score between now and then could very well maximize your buying power for your dream home.
Without a doubt, I’ve missed some important information about the “right time” to buy. Your comments and insights on the subject will be appreciated. Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions or inquiries to [email protected].