Should you buy a house in 2024? Here’s what you need to know

With prices dropping and interest rates rising, you may be wondering when to buy a home. The U.S. Census Bureau reported that while new building permits in March dropped 4.3% from February, they were still slightly up from the same time last year.  Market analysts are hopeful that the housing supply could increase in the near future, and Federal Open Market Committee members signaled an interest rate cut could come in September, but you might still be weighing your next step. Should you wait for prices to drop further or interest rates to go down? What time of year is best?

There’s no one best time to buy a home; your circumstances determine whether purchasing a house makes sense for you. 

Let’s look deeper into what factors determine the right (or wrong) time to buy a home, and how to prepare yourself for what may be one of the largest purchases you ever make. 

When to buy a home: 5 signs that you’re ready

While the timing of your home purchase is a personal decision, there are a few objective signs that buying a house makes sense for you. If all or most of these are true for you, becoming a homeowner might be a good financial move:

1. You are planning to be in one location for 5 years or more.

While it may be painful to lose out on potential equity, you have to overcome the hurdle of closing costs before you come out ahead on a home purchase. Closing costs vary, but can typically be around 2% to 5% of your home’s purchase price. If you’re planning to settle down in your new home for five years or more, the appreciation in your home and the equity you build by paying down the mortgage will surpass how much you spent on closing costs — potentially making homeownership a good move.

2. There is appreciation potential in the place you want to buy.

It’s important to take into account the local real estate climate as you determine when to buy a home. Rising or falling home prices alone won’t necessarily dictate whether it’s a good time to buy; however, you’ll want to know that you’re buying in an area that will likely appreciate in the coming years. 

Areas with a steady supply of jobs, desirable amenities like parks and restaurants, and proximity to grocery stores and other necessities are likely to remain in demand and appreciate over time.

3. You want predictability.

Over the long term, housing prices tend to go up, whether you’re renting or buying. As a renter, you’re subject to whatever housing costs the market and your landlord dictate. When you buy a home with a fixed-rate mortgage, you can ensure that the largest element of your housing expenses (your mortgage payment) won’t rise — even if you don’t get it at a rock-bottom price.

This can be especially helpful in retirement. With a paid-off house, you’ll only have to worry about home repairs and taxes, allowing your retirement dollars to stretch further. You’ll also have the equity in your home to draw on should the need arise. 

4. You have enough funds for a down payment.

The initial down payment on a home is a huge barrier to homeownership for many, especially first-time homebuyers. For a conventional loan, you might be looking at up to 20% of the home’s purchase price. Federal Reserve Economic Data reported that the average sale price of a home at the end of 2023 was $492,300. A 10% to 20% down payment on that home would cost $49,230 to $98,460. Once you have that cleared, you’ve taken a big step in the right direction. 

While many mortgages don’t require it, making a sizable down payment will reduce your overall monthly payment and the interest you’ll pay over the life of the loan. 

5. You’ve saved an emergency fund.

Homeownership comes with additional costs that are often overlooked. For instance, if a pipe bursts or your furnace dies, renters can just call the landlord to repair it. When you own the home, you’re on the hook for those expenses. 

Knowing that repairs are an inevitable part of homeownership, having an emergency fund can prevent these events from becoming financial catastrophes. A stash of cash also ensures that you have enough to keep up with mortgage payments if you are unable to work for any reason.

When to buy a home: 5 signs it’s not the right time

Owning a home can be a huge blessing — or a huge burden. While there are considerable advantages to owning a house such as home equity, appreciation, and the ability to customize your living space, there are many situations in which it makes sense to hold off on buying a house:

1. You have a low credit score.

Even if you have a decent down payment saved, a poor credit history can hurt you when it comes to getting a mortgage. Not only will your credit score determine what type of loans you qualify for, but it can also affect your interest rate and overall payment. 

If your credit score is subpar, it may be worth waiting to buy a house and improving your credit in the meantime so you can qualify for a home loan with more favorable terms. Here is a look at credit score ranges according to FICO:

For a conventional loan, lenders typically want you to have a credit score above 620. Credit requirements vary by mortgage lender and loan program. You might be able to find a home loan you can qualify for with a score below 620, but it might be in your best interest to wait. Making payments on time and paying down credit card debt will help raise your score and establish a reliable credit history.

2. You don’t have a steady income.

While having a variable income doesn’t necessarily mean buying a house is a bad idea, it can complicate things. Your lender wants to see at least two years’ worth of income history and may not lend to you without this. 

If your income is variable (such as in commission-based sales, seasonal work, or if you run your own business), you might need to wait until you can demonstrate several years of income. 

3. You are deeply in debt.

Buying a home when you are deeply in debt is a risky business. Overextending yourself with credit can spell disaster in the case of an unexpected medical expense or job loss.

What’s more, mortgage loan officers like to see that borrowers have a debt-to-income ratio (DTI) of 43% or lower on most loans; this means that the total amount of your monthly debt payments —including student loan payments, credit cards and auto loans —  is no more than 43% of your monthly income. If your DTI is higher than this, it may be worth paying some of it off before taking on a mortgage.

4. It may be cheaper to rent.

With record-low mortgage interest rates in previous years, buying was usually more economical than renting. However, with the recent interest hikes and rise in home prices, that narrative has changed. These days, renting is often the cheaper option.

According to a recent study by Redfin, it’s cheaper to rent a home than it is to buy one in 46 of the 50 U.S. metro areas measured. This trend may not be the case in rural areas, so be sure to run the numbers before deciding whether buying or renting will be best for your budget. 

5. You have no savings.

A new home often comes with expenses that are above and beyond the sticker price, such as closing costs, moving expenses, renovations, and repairs. 

Without any reserves, you might end up putting these expenses on a high-interest credit card, which can set you back financially. Even if you opt for a no-down-payment loan, you should plan on having some money in savings to account for these expenditures.

Pros and cons of buying a home at different times of year

Homebuying does tend to be seasonal, and there are different advantages and disadvantages to purchasing a home during each season.

Preparing your finances to buy a home

Not sure whether you’re financially ready to become a homeowner? Here are a few tips for getting there.

• Build up your savings: Whether you use them for a down payment, closing costs, or an emergency fund, having substantial savings will be a boon when you buy a home.
• Check up on your credit: Take a look at your credit score and see what (if anything) you can do to improve it. Check your credit report and dispute any errors you may find.
• Pay down your debt: If you have revolving or high-interest debt, reducing or eliminating it before you apply for a mortgage will help you qualify for a better loan and mortgage rate.
• Avoid big financial changes: Switching jobs or taking on new debt can be a red flag for lenders, so avoid any large changes to your financial situation until after you’ve closed on your new home.

When to buy a home FAQ 

Should I buy a house now or wait for a recession?

The jury is still out on whether we will experience a recession in 2024 and to what extent, so factoring in macroeconomic shifts will be difficult. Basing your buying decisions on your personal needs and financial situation is wiser and more within your control than trying to time market conditions.

What is the right age to buy a house? 

There is no right age to buy a home, though most states require you to be 18, as a mortgage is a legal contract. The best time to buy a home is when it makes sense for your finances and personal circumstances. Review your finances, DTI and credit score before you begin house hunting.

Will mortgage rates go down in 2024?

Experts like Fannie Mae and the Mortgage Bankers Association predict that mortgage rates will decrease in 2024 and continue to drop in 2025 but this likely won’t be until the latter half of the year. In a July press release, the Federal Reserve announced it would continue to hold interest rates steady at 5.25% to 5.50%, but would likely consider a small cut at the committee's September meeting.