If you want to buy a home, you’re likely looking for ways to keep the purchase price as low as possible. One way that buyers do this is by attempting to “time the market” appropriately. But is there really a best time to buy a house? If so, when would that be?
When Is The Best Time To Buy A House?
There are plenty of strategies you can use to help you determine the right time to buy a home. Your financial situation, the housing market, and economic factors can all play a role in when you make a home purchase.
Here are a few ways to determine the best time for you to buy a house.
Is Winter, Spring Or Summer The Best Time To Buy A House?
It’s commonly thought that the spring and summer months are the ideal times to sell real estate. After all, the weather is more conducive to house hunting, and parents may want to find a place before the kids head back to school in the fall.
But while these seasons are certainly ideal for sellers, they may be a bit too competitive for buyers. Even though these warmer months may be more pleasant for searching for a home, there may be more deals to be had by shopping around in the winter.
In fact, the winter months tend to be a bit slower for real estate and may be the best time to find the lowest prices and the least competition. In cases where the market is slow, some sellers may be motivated to sell. This makes for the perfect environment to get a good deal on a home.
Can You Find The Best Time To Buy A House By Timing The Market?
Understanding the current temperature of the housing market is always a good idea. But it won’t determine whether now (or later) is a good time for you, specifically, to buy a house.
Many home buyer hopefuls try to perfectly time the real estate market to find their dream home. The thing is, the housing market fluctuates relatively frequently. Considering how involved the process of finding and buying real estate can be, it may be futile to try to time your entry into the market perfectly.
Instead, place more emphasis on buying a home when you stumble upon the right one and are financially and emotionally ready to make the commitment. If you have the mentality that you’re going to wait for the perfect time to get into the market, you could miss out on your dream home.
The Best Time To Buy A House Is When You’re Ready
Considering the magnitude of a home purchase, you must not only be financially prepared for this responsibility, but your lifestyle must also be in tune with it.
Assess Your Life Stage
Consider your current household and lifestyle to determine if you’re ready to buy a house. You want to buy a home that suits not only your current needs, but your future needs too.
Consider how many people will live in the home and how long you plan to live there. Also, think about factors like neighbourhoods that are most suitable for your needs. You’ll also need to consider local amenities and your commute to work.
All these factors will play a role when choosing when to buy a house. By keeping your finger on the pulse of the local real estate market, you should pounce on a home that ticks all the boxes, as long as your finances are in order.
Assess Your Finances
As mentioned, the best time to buy a house is when you’re financially prepared to do so. To determine whether you are financially ready, be sure to assess the following:
Available Cash
Upon closing, you’ll need a few thousand dollars to cover closing costs. Generally speaking, you’re looking at anywhere from 1.5% to 4% of the purchase price that you’ll need to have in liquid cash to cover these closing costs.
Your Job And Income
Not only will your lender look at how much you earn, but also your job stability. You want to make sure your job is stable and secure before you consider a home purchase. You’ll also want to make sure you earn enough to comfortably afford your mortgage payments, along with all other bills. Plus, you want to have plenty left over to enjoy life and not pour every cent into your house.
Your Credit Score
Aside from your income and financial resources, your lender will look at your credit score to assess your ability to secure a mortgage. In general, lenders want to see a credit score of at least 650 to 680. The higher, the better.
If your credit score is a little on the lower end, you could be denied a mortgage or be charged a higher interest rate. In this case, you may either want to apply for a mortgage with an alternative lender or take some time to give your score a boost before applying for a mortgage.
Your Debt
Is your current debt manageable, or are you struggling to keep it under control? You could be earning a hefty income, but if your debt is already too much for you to handle, you’ll need to whittle it down before considering a mortgage.
Your lender will look at your debt relative to your income, using what’s known as your ‘debt-to-income’ (DTI) ratio. Generally speaking, your DTI should be no higher than 44% to get approved for a mortgage to buy a home.
When Does The Bank Of Canada Say Is The Best Time To Buy A House?
Buyers, sellers, and real estate professionals keep their ears open to what the Bank of Canada says about the housing market. That’s because its benchmark rate and monetary policy impact mortgage rates.
With rising inflation, the central bank increases rates to settle consumer spending. When this happens, the prime rate increases, which lenders use to determine variable-rate mortgages. As such, when the prime rate increases, so does the cost of mortgages.
Most recently, the Bank of Canada held its overnight rate at 5%, which it has for a couple of years. As of July 2024, the rate has been slashed to 4.5%.
Also known as the Bank of Canada’s policy interest rate, this rate sets the benchmark cost to borrow money, including mortgages. Experts expect rates to come down sometime later in 2024, though there is still much uncertainty surrounding this issue.
Ultimately, a good time to buy a home would be when interest rates come down, making mortgages more affordable for buyers.
Should You Buy In 2024 Or Wait For Rates To Go Down?
Considering how mortgage rates currently are, you may be wondering if it would be best to wait until rates start to dip. After all, the lower the rate, the more affordable your mortgage will be (depending on home prices). But waiting for interest rates to fall may not always save you money, especially if home prices continue to increase.
While home price increases have slowed over recent months, they’re still relatively high. Real estate prices tend to experience dips here and there, but the overall trend is for prices to increase over time.
Should you wait until mortgage rates go down, despite a potential rise in home prices? Or should you buy a home today before prices increase even more, despite the current high-rate environment? Let’s explore these two scenarios.
Higher Interest Rates, Lower Home Prices
Let’s say the current mortgage rate is high, but home prices are relatively stagnant. Now, let’s assume the following:
- Mortgage interest rate: 6.75%
- Home price of $600,000
- 10% down payment ($60,000)
- 5-year, fixed-rate term
- 25-year amortization period
Your mortgage would look like this:
- Mortgage payments: $3,699.27/month
- Interest over the 5-year term: $172,026.43
- Interest over the 25 years: $569,780.41
Lower Interest Rates, Higher Home Prices
Now let’s say the current mortgage rate has dipped, but home prices have inched up. Let’s assume the following:
- Mortgage interest rate: 6.0%
- Home price of $650,000
- 10% down payment ($65,000)
- 5-year, fixed-rate term
- 25-year amortization period
In this situation, your mortgage would look like this:
- Mortgage payments: $3,742.87/month
- Interest over the 5-year term: $165,116.84
- Interest over the 25 years: $537,860.62
In the first scenario, your mortgage payments are slightly less, but you’re paying much more in interest over the life of the loan. In the second scenario, you’re paying a little more in monthly mortgage payments, but saving quite a bit in interest.
That said, if you’re looking strictly at mortgage payments, the difference is negligible between the two situations. However, this is just an example. Mortgage rates and home prices can fluctuate much more significantly. As such, it’s difficult to time the market just right, as these numbers can change on a dime.
Signs You’re Ready To Buy A House
Rather than timing the market, it’s best that you consider buying a home only when your financial and credit situation is ideal. Here are some signs that you may be ready to make a move in the housing market:
You Saved For A Down Payment
In Canada, the minimum down payment amount is 5% of the purchase price of a home. However, you can make a larger down payment to reduce the amount you have to borrow or even to avoid paying mortgage default insurance. Plus, a larger down payment will increase your chances of loan approval and getting a more competitive interest rate.
If you’ve saved a hefty down payment and enough cash to cover all other closing costs, you may be ready to buy a house.
You Have Good Credit
As mentioned, your credit score plays a key role in your ability to secure a mortgage and get a good rate. While there may be minimum credit score requirements to get a mortgage, you may want to strive for a higher score to boost your odds of loan approval and getting a low-interest rate.
If your score is over 650-680, you may be in good shape for mortgage approval.
Your Finances Are In Order
A high income, a low amount of debt, and a stable job are key to a healthy financial profile. More specifically, your DTI ratio — which measures the debt you carry relative to your income — should be less than 44%. But ideally, the number should be well below this threshold to free up more money to pay for a mortgage.
If your DTI is lower than the 44% limit most lenders generally require, you may be in a good position to buy a home.
Final Thoughts
There may be some ways to time your entry into the housing market to get you the best deal on your dream home. Executing this strategy can be nearly impossible given how quickly things move in the market. Ultimately, the best time to buy a house is when you’re financially ready and when it’s most appropriate for you.
