Chances are, you’ve seen the news on the housing market and speculation about the timing of fluctuating interest rates. And, most likely, it’s colored your decision on whether it’s time for you to take the plunge into home ownership.
If you’re like most, you may wonder when rates will drop and, if so, how far will they fall? Is it better to go ahead and purchase today or wait for when conditions are more ideal?
Yet, truthfully, there is no perfect time to buy. Peter McCarthy, PNC Bank’s Head of Home Lending, offers that timing is more a matter of recognizing opportunities than waiting for prices or rates to drop.
“There are so many variables involved and factors to consider when buying a home. There is the matter of prevailing interest rates, of course. And there’s the question of what homes are available. But there are other nuances that determine whether this is the right time – and typically those depend on your specific situation.”
In other words, there’s no date to circle on your calendar. Rather, your decision should be guided by taking stock of your own finances, understanding your needs, and determining what you can afford.
Here are things to consider when deciding if now is the right time to buy.
Your Situation Matters Most
Focus less on broad market conditions and more on your own financial condition. When making a significant financial decision like buying a home, you need to make sure it fits into your long-term plans.
Do you have a steady income? Is your credit sound? Are you tired of paying rent and ready to start building wealth? Do you have a realistic budget when it comes to home ownership?
“To me, those are the critical questions to ask when starting out,” McCarthy points out. “It’s easy to read a sensational news story about the environment and be discouraged. But many are surprised to learn that, upon taking a serious look, owning a home is actually well within reach.”
The first move, McCarthy advises, is to take stock of what you can afford based on a realistic view of your personal finances. An essential tool is an affordability calculator. Taking into account income, current debt, home price, and other factors, you eliminate much guesswork from the decision. Further, McCarthy adds, understanding your debt-to-income ratio will help gauge your ability to pay a mortgage without feeling stretched.
“The great thing about an affordability calculator is that it allows you to experiment with different scenarios. The results can be surprising and, sometimes, they are a reality check. But even that is much preferable to not knowing or going in blind.”
Even if you can’t fill in all the blanks, the simple exercise of using an affordability calculator provides a more realistic picture.
At the same time, other considerations come into play. One of those is your credit score. The better your credit score, the more likely you can get an interest rate that makes your monthly mortgage payment affordable. At the same time, knowing your credit score today makes it easier to address and potentially correct any past issues that might affect your ability to borrow.
It’s like anything. The more you know about your current situation in real terms, the better you’re positioned to make an informed decision.
Finally, there are the intangibles that fall outside of dollars and cents. As McCarthy notes, “If you have outgrown an apartment—either by growing your family or just needing the extra room—then buying a home makes a good deal more sense.”
Don’t Attempt To Game The Market
Even now, many prospective homebuyers are on the sidelines, poised for a big decline in interest rates. Yet there are two basic problems with that strategy:
- Interest rates may not decline as quickly as hoped. In a strong economy, the Federal Reserve may not be in a hurry to reduce rates. “While no one can predict the future with 100% accuracy, when rates are lowered, the drop likely won’t be dramatic,” McCarthy remarks. “Instead, it could prove to be a quarter point here, a quarter point there.”
- When rates drop, buyers rush in. Even with modest declines in interest rates, indications are that the Law of Supply and Demand will become a factor. That means too many homebuyers might end up chasing too few homes. The resulting surge in demand could spike prices, canceling out whatever savings a lower interest rate might provide.
It's also important to understand an essential point: Current interest rates are well within their historical averages.[1]
“From 2008 to 2021, interest rates were at very low levels. Only now are we seeing rates that are more in line with what has been normal over the long term,” McCarthy confirms. “It’s better to purchase a home in today’s market, then refinance when and if rates drop, not vice versa. Otherwise, you might be waiting a very long time for the decline you are looking for.”
Get A Professional In Your Corner
When contemplating a home purchase, your biggest enemy is the unknown. While there is a host of information out there—some true, some not so much—wisdom and experience matter a great deal more. As long-time industry veterans, McCarthy and his team have helped untold thousands become homeowners.
“The biggest mistake people make when buying a home? They call the mortgage lender last rather than first. This is especially true in today’s market where loan pre-approval is almost required for sellers to take your offer seriously. Yet, aside from pre-approving your loan, a mortgage lending officer can provide so many other benefits.”
As one example, it’s knowing what kind of mortgage might be best for your unique situation. There are mortgages that require minimal down payments. Or, depending on where you choose to buy, there may be programs or local grants that provide down payment assistance to first-time buyers. A mortgage professional with local knowledge can help you find where to look.
The Time May Be Right For You
In short, the headlines come nowhere close to telling you what might make sense for you. Equipped with the right knowledge and the right professionals, a pleasant surprise could be in store.
To learn more, visit PNC Bank’s Home Lending HQ. You may become a proud homeowner a lot sooner than you ever thought possible.
