On the House: Should First-Timers Bother Trying To Buy a Home Right Now?

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Q: Is buying my first home right now a mistake?

Homeownership has long been the American dream. A picturesque house of your own with a bright green lawn is deeply ingrained in our culture as something to aspire to. It has helped generations of homeowners build wealth that has been passed down to their children and their children’s children.

That’s why the following idea might shock you: Most people probably shouldn’t be buying a home in today’s market.

Many first-time homebuyers might be better off giving up, at least for now.

Home prices are high, mortgage interest rates have exceeded 7%, and there aren’t many properties to choose from. Inflation and rising rents are eating into down payment funds. And the economy and the financial markets are shaky. Even if the nation doesn’t fall into a messy recession (which is looking ever more likely), many Americans might find themselves out of work.

Today’s buyers will face monthly mortgage payments that are roughly 75% higher than they were just one year ago* for the same house.

Unless you’re a member of the richest 1% and don’t need a mortgage, it’s probably not the best time to make what will probably be the most expensive purchase of your life—unless it’s the right time for you.

Your personal circumstances and finances, not the state of the housing market, should be the deciding factor on whether you make an offer on a home or wait until prices and mortgage rates come down.

During the COVID-19 pandemic, I had a friend living in a cramped, two-bedroom apartment in Queens, NY, with her fiancé and three young children. Both she and her fiancé, an attorney and a consultant, were juggling work, virtual meetings, and child care from home. There was no room for exercise equipment—or just about anything else. They were miserable.

Despite the challenges in the housing market, I encouraged her to broaden her search farther out into the suburbs, to be aggressive in her offers, and to not give up. They had savings and stable jobs that were likely to weather an economic downturn. It didn’t matter if it was a bad time to buy. It was the right time for them to become homeowners.

They recently purchased a large house in the suburbs with a big backyard and a pool. Sure, it was more than they had expected to spend and it needed some work. But it’s dramatically improved their quality of life.

Around the same time they were looking, I got a call from another friend who wanted some advice on the housing market. He had recently visited with his brothers, who had extolled the virtues of homeownership. My friend, who had just gone through a divorce, was suffering from a bad case of FOMO.

He didn’t need the extra space. He rented a two-bedroom unit and had converted the extra room into a home office where he worked. He didn’t have any children or many out-of-town guests who needed a place to sleep. There was a large outdoor courtyard in the complex where he and his neighbors liked to relax or throw parties on the weekends. And while he had a great job at a health care company, he didn’t have a down payment saved up.

So I encouraged him to wait. He would likely be paying much more for a mortgage than he would for rent on his apartment. There was no pressing need for him to buy unless he found a property at a steal.

It’s just about impossible to time the market. Your circumstances are more important than mortgage rates when contemplating homeownership. If prices and rates go up even higher, many prospective buyers will kick themselves for waiting for them to go down. But if a housing bubble pops and prices plummet, they’ll be glad they waited. Hindsight is 20/20, but much less so when you’re in the moment.

What I know is that the housing market is in the midst of a correction. Thanks to those high mortgage rates, only about a quarter of U.S. households can afford to purchase a home, according to a recent Realtor.com® analysis. With fewer buyers, bidding wars and high offers over the asking price are dissipating. Homes are sitting on the market longer. Inspection and appraisal contingencies are back, many sellers are reducing prices, and buyers can once again strike a bargain.

Median list prices are down a little from their peak over the summer, although they’re still up nearly 37% over the past three years, according to Realtor.com data. For those who don’t need a mortgage, it could be a very good time to purchase property.

However, real estate experts are divided on whether prices will fall further, remain flat, or even rise. And no one knows just yet what will happen with mortgage rates.

So while I don’t believe homeownership is right for everyone right now—particularly cash-strapped, first-time homebuyers—there are plenty of folks who should push forward regardless of market conditions. If you can afford a home and any necessary repairs and maintenance without being house-poor, have a stable job, and believe homeownership is right for you, then make it happen despite the difficult housing market.

* The calculation is based on national median list prices in September 2021 and 2022 from Realtor.com®. It also compares mortgage interest rates from the third week of October this year and last for 30-yea fixed-rate loans using Freddie Mac data. It assumes buyers put down 20% on their purchases.

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