Buying your first House might be the biggest financial investment that you’ve ever made to this point in your life, and possibly the most complicated. In addition to determining if you’re making a sound financial investment, owning your home is just as much an emotional decision. That’s because where you choose to live affects things like who you will meet and become friends with, your daily commute, your children’s friends and education and so much more. While there is no one-size-fits-all decision for deciding if you should buy a house now, there are a few things that you’ll want to keep in mind when making that decision.

What to Consider Before Buying a House

Here are a few of the most important things to consider before buying a house:

• Savings — Make sure you have enough money saved up not only for a down payment but for costs that come with being a homeowner
• Location — Location, location, location — there’s a reason that’s one of the most common real estate maxims. Check out not only the immediate neighborhood but the surrounding area
• Interest rates — Prevailing interest rates and macroeconomic conditions will play a big part in determining your monthly mortgage payment 
• Taxes and cost of living — Another big part of your monthly payment will be your home’s property taxes. Property and income tax rates can vary widely even within geographically similar areas.
• Budget — In addition to making sure you have enough money saved up, consider how your new home purchase will affect your budget going forward.

Rising Mortgage Rates

For decades, interest rates wenthave gone lower and lower. It has seemed like every time you might think that interest rates were as low as they could possibly go, they gotkept going even lower. However, wWith the Federal Reserve raising interest rates several times in 2022, the rates on most mortgages also increased. Higher interest rates on mortgages mean that potential homebuyers will have higher monthly payments for the same amount of house. For buyers trying to stick to a particular budget, that means they can afford less house than they would with lower interest rates.

One of the reasons that the Federal Reserve is raising interest rates is to help combat inflation. Higher inflation does correlate with higher housing prices, but raising interest rates helps to balance that out. As we discussed, higher interest rates mean that many homebuyers can’t afford as much house as they might have been able to with lower interest rates. These competing factors help to offset each other. 

Increases in Home Inventory

Over the past several months and years, the housing market has been, for lack of a better word, “crazy”. With more people looking to buy houses than available homes for sale, it has been very much a seller’s market. There have been numerous reports of people being constantly outbid on homes, or having to make an offer over listing price and/or without any contingencies to even have a chance at landing a house.

As interest rates have risen, the pendulum has started to swing back towards buyers. Some buyers have been priced out of the market due to higher interest rates. Still others are playing it safe due to recession fears. The laws of supply and demand hold that with fewer buyers available, housing prices will start to slide. Or, at the very least, not appreciate as fast as they have been over the past several years.

Should You Buy a House Now?

So, should you buy a house right now? There isn’t a single answer that is right for everyone — instead, it will depend on your financial and overall life situation. But many financial advisors suggest being patient and trying to not let your emotions get the best of you. You might see a home that you think is perfect and the only one that will work for you, but the reality of the situation is that there are probably many different homes that will be great options for you.

While nobody knows what the market will do in 2023 and beyond, it is certainly possible that interest rates will continue to rise, meaning it may make sense to lock in rates now. And while home prices may not appreciate at the same levels they have been over the past few years, historically home prices have very rarely actually gone down for very long.If you do decide to buy a house now, make sure to read our complete house shopping guide for tips and tricks on how to make the most of your home purchase.

The Bottom Line

Buying a house is an important financial decision, and one that is often fraught with emotions. If you’re considering buying a house now, there are a few things that you’ll want to consider and ask yourself before making a home purchase. Interest rates have recently risen, driving mortgage rates higher. This is one factor that is contributing to the end of the sellers’ market that we have been in. No matter what you decide, be patient and keep your emotions out of this decision. Talk with your trusted friends, family and advisor to make the right decision for your specific situation.

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