Yahoo Finance 13-09-2024: Mortgage rates have fallen below 6.5% without the help of the Federal Reserve — in fact, the 30-year rate is 6.2%. Market uncertainty is putting pressure on 10-year Treasurys, the financial instrument most related to mortgage rates. An even lower rate is available to home buyers willing to take a 15-year mortgage term: 5.27%
With expectations of an interest rate cut by the Fed in September, rates could become even more favorable.
So, is 2024 a good time to buy a house?
There are many factors to consider. It’s not all about mortgage rates. Housing inventory, finding the best mortgage lender, and getting a fair price on a home are all factors. But you’re not buying the market. You’re buying a house in a city, neighborhood, and block where you want to live. Hopefully, for quite a while. Let’s consider how 2024 might be the year you buy a house.
Read more: Is it a buyer’s market or seller’s market? How to tell the difference.
Understanding the 2024 housing market
Mortgage rates
Mortgage rates have fallen below their 52-year historical average. Since April 1971, the 30-year mortgage rate has averaged 7.73%, based on data collected by Freddie Mac.
Of course, that’s little comfort to home buyers today who remember when rates were under 3% for much of 2021. Conversely, the highest rate on record was a whopping 18.63% in October 1981.
According to Zillow research, the trend of mortgage rates — whether interest rates are generally rising or falling — may influence whether existing homeowners would consider selling their existing house to move into another. With so many existing homeowners paying a much lower mortgage rate, the study found it would take rates to fall somewhere to between 4% and 5% before they would sell the home they’re in and buy another.
Read more: How to get the lowest mortgage rates
Home inventory improving
This rate gridlock has contributed to the lack of existing homes for sale. However, with the beginning of the 2024 spring home buying season, new listings are rising. Realtor.com reports that 17.8% more sellers listed their homes in the week ending March 16 compared to the same week in 2023.
Overall active inventory is up nearly 24% year over year, as well.
Take action: Consider expanding your search to more affordable areas close to your favorite neighborhood if it’s too pricey.
Learn more: Why are house prices so high?
Home values are moderating
There is a little good news, though. The increase in home prices is moderating.
“U.S. house prices increased modestly over the course of 2023,” Dr. Anju Vajja, acting deputy director for the Federal Housing Finance Agency, said in a Feb. 27 release. “However, the market showed signs of softening as house price appreciation was lower in the fourth quarter of the year than in the previous quarter.”
Take action: Look for homes with price reductions where you want to live. Then negotiate even harder.
Learn more: When will housing prices drop?
New-home inventory is rising
Construction of new homes is showing promise of growth, with a near 6% increase in housing starts year over year in February. Builders still face supply shortages and higher prices for land and labor, though.
Take action: If you want to buy a house now, consider buying a new construction home. You may be able to choose some finishes or make an even better deal on a spec home that’s been on the market for a while.
Read more: When will the housing market crash again?
When is a good time to buy a house?
Buying a home is more than considering macroeconomic factors. It’s an important life decision based on your personal and financial situation.
Where do you want to be in 5 years?
When you rent, the decision to move is broken down into six months, or a year or two at a time, as your lease renews. But every dollar-related detail makes a home purchase a medium- to long-term investment. Buying a house includes various costs: the down payment, closing costs, and financing fees, moving expenses, property taxes, and perhaps selling the house you’re in now.
Homeownership requires a years-long timeline. How you make a living, your friends, family, and even community amenities all come into play.
Dig deeper: Buying vs. renting a home — how to decide
Your income
A primary consideration: your job. Will it require a location change anytime soon, or can you live where you please? Is your income steady and all but assured?
Read more: How much house can I afford?
Your credit score
One of the significant factors that will qualify you for a home loan is your credit score. It’s important to know it before applying for a mortgage.
For the most common loan, a conventional mortgage not backed by a government agency, you generally need a FICO score of 620 or better.
FHA loans can allow a credit score as low as 580 with 3.5% down. VA loans issued to qualified military service members and veterans don’t officially have a minimum credit score, though some lenders will require a FICO score of 620.
As a benchmark to where you stand, the median credit score on a new mortgage in the second quarter of 2023 was 769, according to the New York Federal Reserve.
Of course, minimum scores are the entry-level to qualifying; the higher your score, the better the loan terms you’ll be offered. Most importantly, that can mean you’ll pay a lower annual percentage rate over the life of the loan. You may also have more room to negotiate on fees.
Read more: The credit score needed to buy a house in 2024
Your current debt load
A primary financial metric lenders will use to determine your creditworthiness is your debt-to-income ratio.
Fannie Mae, a government-sponsored entity that provides liquidity to the home loan market, looks for a maximum total DTI ratio of 36% of “the borrower’s stable monthly income.” Exceptions can allow for total DTIs up to 50%, but it’s usually best to avoid working on the edges of qualification if you can.
You can calculate your DTI by dividing your total recurring monthly debt by your gross (before taxes and other deductions) monthly income.
Include debt such as monthly mortgage payments (or rent), real estate taxes, and homeowners insurance. Also, add any car payments, student loans, and the monthly minimum due on credit cards. Remember any personal loan payments and child support or alimony.
Do not include debt such as monthly utilities — like electricity, water, garbage, or gas bills — or car insurance, television streaming subscriptions, or cell phone bills. You can also exclude health insurance costs and miscellaneous expenses such as groceries or entertainment.
Your savings
Having a cash cushion in the form of emergency savings shows lenders that you are prepared for the unexpected. Of course, that savings account should also include …
Your down payment
When saving for a house, a large chunk of your savings account should be dedicated to the down payment. A minimum of 3% down is required in order to qualify for a conventional loan targeted to first-time homebuyers — or ideally, 20% to avoid private mortgage insurance. Yes, zero-down options exist if you are eligible for a VA- or USDA-backed loan.
According to Realtor.com, the average down payment in the third quarter of 2023 was 14.7%.
Read more: Should you buy a house?
Your next move
Buy smart and shop a lot. Relentlessly shop mortgage rates and lenders for the best loan offers and justified fees. Get a written mortgage preapproval from your lender, then shop for a house you can love and can afford. Your home buying competition is.
According to Zillow, when it comes to first-time buyers versus repeat buyers, first-timers are more likely to reach out to at least three lenders and three real estate agents.
(Reporting by Hal Bundrick)