Mortgage experts explain why timing the real estate market is not only difficult to do, but often costly in the long-term.
Everyone wants to get the best deal when they’re buying a house, and no one wants to feel they’ve been duped. That’s why timing the real estate market may seem like a good idea – hold out to buy a home at exactly the right moment, when you can get a property at the absolute lowest price, the best rates, and under the most ideal conditions.
Unfortunately, timing the real estate market is not only very difficult to do, but it can also be an expensive mistake.
We’ll explain why – and tell you what you can do instead.
What's in this Article?
Why timing the real estate market is a bad idea
4 reasons not to wait out a seller's market
Focus on what you can control
Frequently asked questions
Why timing the real estate market is a bad idea
We’ll just get this out of the way upfront: Timing the real estate market is all but impossible, especially for first-time homebuyers. Even mortgage professionals who have been in the business for decades don’t recommend it – or do it themselves.
“I would not advise [homebuyers] to ever try to time any market,” says Garett Seney, a mortgage adviser with Fairway Independent Mortgage Corporation (which owns Home.com) in south Boston.
Mike Kadair, an area sales manager with Fairway in Batavia, Ohio, recently wrote on Home.com that he advises against timing the market as well, and that he doesn’t even attempt it himself.
Why the naysaying? Because the real estate market is unpredictable and variable based on where you live. There’s no way to say with certainty where mortgage rates, home prices, and other market trends will go.
“I would not advise [homebuyers] to ever try to time any market.”
Garett Seney, mortgage adviser
As Kadair put it, “We know what we know now. We don’t know what’s going to happen in the future. Will rates rise? By how much? Will housing prices continue to spike? Experts can make an educated guess about these questions, but no one can say for sure.”
Interest rates are expected to rise this year, potentially to around 4%. But the experts who make those predictions can’t guarantee that rates won’t go higher than that or that they won’t drop significantly lower than they are right now (though the latter is highly unlikely).
Likewise with housing prices. Real estate indicators point to housing prices continuing to rise this year, though perhaps not as rapidly as they did in 2020 and 2021. But no one can guarantee a continued climb.
What if I buy, then the market crashes?
Perhaps homebuyers’ biggest fear is that they buy a home just before the market crashes. While that’s not likely in today’s market, some would argue it’s a good idea for those who plan to own long term to buy despite the risk.
“I bought a home at the very top of the market in June 2006,” says Tim Lucas, VP of Content for Home.com. “I purchased it for $540,000 and a couple years later, you could have picked up the same home for $390,000.”
Lucas said it didn’t feel very good to see his home value plummet like that. “But I took the long view. On paper I lost money, but it was still a great place for my family to live.”
After all, if you don’t have to sell, you don’t actually lose anything.
Lucas’s patience paid off. “The market eventually recovered,” he says. “Similar homes in the area are now selling for over $1.2 million.”
Homebuyers’ fears are legitimate, especially with a housing crash so recent in history. But those in it for the long haul should be encouraged that one of the biggest housing downturns ever couldn’t keep prices low for long.
Make your best decision based on today’s market, not tomorrow’s
All you can do is make the most of the information you have right now – and focus on what you can control, including maintaining good credit, saving for a down payment, and getting preapproved* so you can put in an offer as soon as you find a house you want to buy.
"The best thing to do would be to get preapproved for the market you are in,” Seney says. “From there, it is all about finding a property you love with a monthly payment you are comfortable with. If you cannot find the right property, at least you are already preapproved so you can pounce and make an offer once the type of property you desire comes on the market.”
Getting preapproved and getting into the market now allows you to be proactive about finding the right home. Holding out on the chance that housing prices will decrease or that interest rates will drop – again, both highly unlikely this year – will mean missing out on great properties.
It will also mean missing out on great interest rates, as the current rates are still quite low by historical standards.
Finally, you miss out on building equity as well. And equity is a vital component of wealth-building in the U.S.
Buyer’s market vs seller’s market: 4 reasons not to wait
The drop in interest rates and increase in home values in 2020 and 2021 made for a robust seller’s market – meaning sellers have the advantage. The demand for homes far outpaced the supply, which meant many buyers were willing to pay top dollar for properties.
Bidding wars became commonplace, even for modest homes. Real estate investors also snapped up a lot of properties with cash offers, increasing competition for the limited number of homes.
In a buyer’s market, sellers don’t have as many offers coming in. They’ll negotiate on price or renovations and are willing to make certain concessions to get their homes sold.
Obviously, if you’re a buyer, you’d prefer to look for homes in a buyer’s market, when the chance of negotiating the sales price and getting a good deal are greater.
Nevertheless, the fact that this is still a seller’s market is not a reason to wait. Here are four reasons why:
1. Interest rates are going up
Inflation is creeping up, and so are interest rates. That means the cost of borrowing money will get more expensive, including for mortgage loans. The more you pay in interest on your house, the less you have available for savings, investments, and other financial priorities. Fortunately, mortgage rates are still low, and you can lock in a great rate with a fixed-rate mortgage.
2. Home prices are going up
If you’re waiting for housing prices to crash, consider this: Goldman Sachs predicts that home prices could increase by 16% this year. That means that a $200,000 house today could cost $232,000 by the end of 2022. If you’re ready to buy a house now but take a wait-and-see approach, you could spend tens of thousands of dollars more in principal and interest when you finally buy a home.
3. Waiting could mean decreased affordability
Mortgage lenders determine how much you can borrow to buy a home based on several factors, including your credit score, income, down payment, and potential interest rate. The interest rate affects your debt-to-income ratio (DTI), and all standard home loan programs have certain DTI limits. If you wait to buy and interest rates increase, not only will you pay more on the loan, you may get approved for a lower loan amount.
Fairway loan officer Jen Gile put it this way when we interviewed her in late 2021: “The same house now becomes less affordable next year, and becomes not possible for some buyers. It doesn’t make sense to try to time the market.”
4. Your net worth and wealth-building opportunities will suffer
Putting off your home purchase also means forgoing all the wealth you’d build thanks to those rising prices. As Gile put it, “If you would have bought a house two years ago, your house would have appreciated 20% or more by now. To wait could put buyers in a situation where their net worth is 20 to 40% less because of waiting.”
Focus on what you can control
As a homebuyer, you can’t control the interest rate environment or the housing market. But the one thing you do control? Your own finances. That’s why mortgage professionals generally suggest buying a home when you’re ready and able — not when the market dictates.
And if you’re worried about rates and affordability, there are things you can do to position yourself for the best possible opportunities. Maintaining a good credit score and keeping your non-housing debts low can help you qualify for lower interest rates.
Saving up as much as you can for a down payment will mean you have to borrow less money, which means less interest owed over the life of the loan. Looking for houses that are below your maximum preapproval amount can leave you some breathing room in your monthly budget and – you guessed it, help you save on interest long-term.
Think of the equity benefits, too. Buying a home once you’re ready, rather than trying to time the real estate market, allows you to start building equity earlier. From there, you can build financial success while also putting down roots in a home you love.
Timing the real estate market FAQs
How do you time a real estate market? Timing the real estate market is extremely challenging. There’s no way to predict for sure what will happen with interest rates, home prices, demand, inventory, and other market factors — or when those changes will occur.
Your best bet is to buy a property when you’re financially ready. That means when you have enough for the down payment and closing costs, you’re clear on where you’d like to live, and you have stable enough income to afford your monthly mortgage payment for the long haul.
Is the housing market going to crash in 2022? Most economists do not expect a housing crash in 2022. Though inflation is rising and home prices have increased significantly in recent years, the conditions are quite different from the housing crash of 2008. Most homeowners have substantial equity in their homes, which would prevent widespread foreclosures should prices take a downturn. There is also very strong housing demand, and mortgage lending standards are much stricter than they were in the early 2000s.
Why are houses so expensive right now in 2022? There are several reasons home prices are rising right now. The first is very low inventory. According to Freddie Mac, the market is 3.8 million homes short of demand as of 2020. When you mix this shortage with historically low mortgage rates, you see rising prices. It also leads to a more competitive market and bidding wars, which also drive up property values.
Are mortgage rates going to rise this year? Most experts predict that mortgage rates will rise this year. The exact number varies by source, but predictions are as high as 3.8%, Kiplinger’s forecast. While that would be a jump from the record-breaking low rates we saw last year, they’re still quite low, historically speaking. Just remember: As rates climb, it means one of two things: Your payment on the same house will go up, or you’ll need to buy a lower-priced property.
What can I do to make my home purchase more affordable today? There are lots of things you can do. You can use a low- or no-down-payment mortgage loan, seek out down payment assistance (try your state housing agency for help), or you can improve your credit to qualify for a lower mortgage rate. You might also be able to ask for gift money from a family member, which you could use toward your down payment.
*Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.