Over half of potential home buyers say one key thing is holding them back from buying a new house: They don’t have enough money for a down payment. This is not surprising given that a house is likely the most expensive purchase people will make in their lives and median home prices are still far above what they were at peak before the housing bubble burst in 2008. If you can’t afford the down payment, forget about closing costs and monthly mortgage payments.
But what about if you can? Or if you can and don’t know it? According to the U.S. Census, median home sale prices varied from $308,400 to $335,400 depending on when in 2018 you were shopping. In real estate, people often say what matters most is location, location, location. For buyers, timing is just as important.
The sale price of a home is based on a number of factors, and many of them relate to market timing. Some people want the most money for their house, so they will target a seller’s market with a lot of potential buyers. Other people need to sell their house ASAP in order to buy another house or move for a job, so they will put it on the market immediately and price it to sell.
Buyers also have different motivations. Most buyers want to get the most house they can for the money, but some buyers are seeking their dream home and money is not a limiting factor.
So what is the best time of year to buy a house? It depends on your specific situation. It also depends on the economy and mortgage interest rates.
Your housing and economic situation
Everyone’s situation is different, but here are four common scenarios. Whichever fits you, make sure to get a mortgage pre-approval letter first. This shows real estate agents and sellers that you are serious. Even if you are just perusing, what happens if you find the perfect house? Without a pre-approval, you might lose out to another buyer because the seller may not be sure you can secure financing. Also, be sure to shop around for a mortgage. A rate variation of as little as 0.5% can save over $30,000 over the life of a mortgage.
Scenario 1: I want the best deal
September and December
Bargain hunters are looking for the most house they can get for the least money. This requires shopping when demand is low. According to the National Association of Realtors, the two months to find the best deals are September and December.
In September, the number of available houses is sometimes higher than in the summer and sometimes lower, but one thing is constant: lower demand. Fewer potential buyers means less competitive bidding that drives up prices and sellers less motivated to hold out for a better offer. The lower demand is due in large part to kids returning to school and families putting a house search on hold until the next spring or summer.
Real estate agents consider December part of the off season. In winter, there are fewer new listings, the number of homes for sale overall is down and there are fewer buyers in the market. This often translates into lower listing prices and less competition. Many people judge a house in part by its curb appeal, and this is hard to judge when the grass is dead in many parts of the country and covered in snow in many others. Many people also don’t like to go house hunting in cold weather. San Diego in December is a great time to visit open houses; New York or Michigan not so much. For this reason, data shows there is less price differentiation places with less weather variance between seasons.
September and December are considered buyers markets, meaning there is low demand compared to supply. A seller is more likely to offer a lower price at these times. Data shows median home prices are down $1,000 to $2,000 in December, compared to spending about $7,000 more than market value on average throughout the year. In fact, December 26 is considered the day to get the best deal.
Scenario 2: I want a good selection and a good deal
The kids will soon be headed back to school, the grass is green, the flowers are still blooming, and school is approaching quickly. Sellers know demand will drop as September approaches. August is a time of peak or near peak supply of available homes, but the prime selling window is narrowing and the number of days those houses have been on the market is increasing, according to data from Zillow. This is good for buyers looking for a deal. As a bonus, sellers are less likely to require a large earnest money deposit as a show of good faith as there are fewer buyers vying for the same house.
Scenario 3: I am just perusing but will buy if I stumble on the right house
Summer or Fall
Buyers without a specific timeline can house hunt any time of the year, but they will find the most options in late summer and fall. The market is flooded with houses and buyers in June, so buyers will have a lot of choices. But they will likely encounter high asking prices and bidding wars, as spring and early summer is considered a seller’s market. The competition starts to fall off in early summer and falls further in August as the new listings slow down and the number of days houses have been on the market increases. Buyers purchasing their first house might consider at-least window shopping during these times to get a sense of what is available. If you want a deal, hold off on making a purchase until the fall.
Scenario 4: I am searching for my dream home
Spring and Summer
Buyers with big pocket books, a loose time table and their sights set on the perfect house should consider shopping in June and July when inventory is highest. It is the worst time of year to find a bargain, but dream homes are rarely bargains. The more houses there are to pick from, the more likely you are to find your perfect house. You will have a lot of company, so be prepared to pay a premium to get the house you want.
Scenario 5: I am looking to buy a house contingent on selling mine
Spring and Summer
The home buying process is long and complicated to begin with, so when you are buying a house contingent on selling yours you need it to be both a buyers’ and sellers’ market. Fewer buyers means less interest and competition for your house, and you need that money for a down payment on your new house. Getting a deal on a new house is not so great if it also means getting less in sales from your current house.
What time of year you buy a house has a big impact on its sale price, but that is one factor in the house buying process. Mortgage rates are based on market conditions and fluctuate frequently. The lower your interest rate, the less you will pay over the life of your loan. For this reasons, it is best to buy a house when interest rates are low.
During 2019, the Federal Reserve cut interest rates three times in the second half of the year. The Fed does not set mortgage rates. It instead determines the federal funds rate, which impacts interest rates, including mortgage interest rates. According to the Federal Reserve Bank of St. Louis, the median mortgage interest rate for a 30-year-fixed loan was below 4% (near historic lows) for much of 2019. In the fall of 2018, median mortgage interest rates were over a percentage point higher. A lower interest rate can save buyers tens of thousands of dollars over the life of the loan, so watching for low interest rates is critical. If you read that the fed is going lower interest rates, waiting might be prudent; if you read they are going to raise rates, consider quickly securing a mortgage interest rate.
Housing prices and interest rates reflect the economy. Before the housing bubble burst in 2008, adjustable rate mortgages, low down payments and interest-only loans were common. Then came a slew of foreclosures, a recession and a reset of the housing market. Now buyers must have good credit and high credit scores to get a mortgage. And 20 percent down is again the norm. The economy is stable for now, but if you read about economic uncertainty, that is a good time to house hunt as prices will likely be lower.
If you are ready to be a homeowner, assess your personal and financial goals and give us a call. We have helped many people through the home ownership journey, with a focus on how to secure a better mortgage rate. We would love to help you.