A home purchase is among the largest financial transactions you will make in your life, and is not a decision to be made lightly. But how do you know it’s the right time to buy? It depends.
Your financial situation will dictate how much home you can afford, your interest rate and your negotiating power. That said, there are economic signs you can follow to get a snapshot of how current market conditions are impacting home prices, mortgage rates and housing supply.
Freddie Mac releases monthly economic outlooks in which our economists offer analysis of the current housing market and expectations for the months to come. Based on these outlooks, we’ve collected all you need to know about current market conditions and how to best prepare yourself for homeownership.
Current Market Conditions
Freddie’s Forecast: Home prices are likely to increase in 2024, but at a slower pace than 2023.
Why It’s Important: Home values tend to rise over time, which is why homebuying is considered a safe investment. It’s also one way to build wealth.
In the second half of 2023, home prices grew faster than earlier in the year. This was due to a continued lack of housing supply along with existing homeowners’ unwillingness to sell, because their mortgage rates are lower than current market rates.
In 2024, Freddie Mac predicts the economy will slow and only small improvements to housing supply and mortgage rates. Because of this, we predict home prices will increase in 2024, but at only half the speed of 2023.
Freddie’s Forecast: Mortgage rates are likely to decline steadily across 2024 but remain in the 6% to 7% range.
Why It’s Important: Lenders set your mortgage rate based on several factors, including current market rates. Small differences in rates can make a big difference in your payments, which is why it’s important to watch mortgage rates closely.
Mortgage rates reached a two-decade high in October 2023, but rates have steadily declined since then. We expect rates to decline further this year but remain in the 6% range, which should be welcome news for some homebuyers.
Freddie’s Forecast: Housing supply will remain an issue until more housing is built or mortgage rates decrease further.
Why It’s Important: Demand for housing is primarily driven by home prices and mortgage rates. But the reverse can be true, too: demand can also affect home prices. Typically, when more people are trying to buy homes than there are homes to buy, prices tend to rise.
And although the total monthly supply of homes, which includes new and existing homes, increased to its highest level since January 2023, the current supply still reflects a seller’s market. Until more homes enter the market — whether newly built or put up for sale — a supply-demand imbalance remains.
Is Now a Good Time to Buy?
The Verdict: Yes, but things may get better.
What to Know: Current market conditions reflect a thawing of what has been a frozen housing market. In 2024, the pace of home price growth is likely to slow, and mortgage rates are down from their recent peak and likely to remain relatively stable. The overall housing supply remains an issue though. Until rates decrease and more current owners are incentivized to put their homes for sale, there may not be enough supply to fully melt the freeze.
How to Prepare for Homeownership
There are several steps you can take to make sure you are ready for successful and sustainable homeownership when the time is right for you.
- Start by understanding how much home you can afford. To get a rough estimate, most lenders suggest you spend no more than 28% of your monthly income — before taxes — on your mortgage payment. You can also multiply your annual gross income — the income you earn before taxes and other deductions — by 2.5. Ultimately, what you can afford will vary based on current interest rates, your debt and your credit history.
- Next, consider setting a savings goal for your eventual down payment. It’s a myth that lenders require you to put down 20% of the purchase price as a down payment. Some loan products require as little as 3% down. You should know, however, that the less money you put down the larger your monthly payment will be.
- Finally, start to put together your homebuying team. Surrounding yourself with experienced, trusted professionals will help you make informed decisions and avoid common mistakes during the homebuying process. Teams are typically made up of a housing counselor, real estate agent and lender, and each plays a different role in helping you find a home.