Bonus question: what IS actually a good time vs. a bad time to buy a house, if that is an actual thing?
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When houses are expensive it’s bad and when they are cheap it’s good.
Thats the short eli5 version
An over-inflated housing market is bad, a depressed one is good.
Low interest rates is good, high interest rates is bad.
So interest rates and housing bubbles (or not) is what most people mean when they say “good or bad”.
When you buy a house, you make an agreement on the price, let’s say $100,000. But, let’s say that in the next year, your area becomes really desirable to live in. Houses comparable to yours start selling for $200,000. You will have bought your house in a “good time”, because you still only have to pay $100,000, but if you choose to sell, you could likely get $100,000 more than you paid for.
In a “bad time” the reverse is true. You bought the house at the peak of hype, and afterwards, prices decrease. Now you’re stuck paying an overpriced mortgage, and can’t sell the house without taking a loss.
Good market time means that the houses are a a low price. Because if the prices were high, and theres a recession, you lose money. Example, You buy a house for 200k. You get a loan for the 200k plus a variable interest of lets say 12%. If a recession hits. Your house value can drop to 60k but guess what? You are fkd because no one is gonna buy the house for that 200k because the current value is 60k. And on top of that, that variable interest can jump from 12-80% in the blink of an eye. So not only are you stuck paying for the house that is no longer at its peak value, if you try to sell it, you are getting no where near what you paid for.
Usually, they’re looking at balance of buyers vs. sellers… when there are more buyers than sellers, it means fewer choices and fiercer competition among buyers. That drives up prices = bad time to buy. When there are more sellers than buyers, then buyers have more choice and more leverage to negotiate the price down = good time to buy. There are also other factors, like mortgage interest rates and how those affect affordability, general affordability (prices relative to incomes), and future prospects for the economy.
In addition to people being interested in buying homes in recent years due to COVID (spending more time at home, work/school from home, etc) the super low interest rates also made homes much more affordable at each price point — a $350k mortgage at 5% interest is same monthly payment as a $450k loan at 3%. So even higher priced homes were still affordable to many buyers… but now we’re seeing a reversal, where interest rates have doubled to 6% as the Fed raises rates to fight inflation, but sellers who’ve heard nothing but tight markets and skyrocketing home values are still often in denial that buyers’ budgets are severely cut by the new higher mortgage rate and there are much fewer buyers at each price point that just 3-4 months ago.
If interest rates are low and prices are low, then it is a great time to buy a house. You are getting lots of house for the bank’s money and the bank’s money is cheap to rent.
If interest rates are high and prices are high, then it is a bad time to buy a house. You are getting less for the bank’s money and they’re charging you an arm and a leg to rent it.
If interest rates are high and prices are low, then it is a good time to buy a house WITH CASH. You have less competition to buy your house and you’re not borrowing any money so you don’t care about interest rates. The competition is less because most people don’t buy houses with all cash unless downsizing, moving to a cheaper state, or are significantly wealthy–they care about the interest rates.
If interest rates are low and prices are high then it MIGHT be a good time to buy, but it could be 2008.
It’s actually considerably more complex than this because someone buying a house requires someone to sell a house. And for non-new units if you sell your house you’ll need to find another one.
When you have few houses for sale, but a lot of people wanting to buy a house (this has been the SF Bay area state for the last few years until very it is a horrible experience trying to buy. Houses generally go over list price and you’ll they’ll have multiple offers who compete to give more money and less favorable terms in order to “win” the house. Unless you really overbid, you are likely to lose out on several houses you make an offer on.
in addition i would add when there is very little inventory and a lot of buyers, sellers are in the driver seat. they can get the price they want with little negotiation. buyers have fewer choices and get into bidding wars often paying thousands over asking price. conversely when there is a lot of inventory and fewer buyers it might be a good time to buy. its a “buyers market”. you can take your time and negotiate a better price or request repairs and other concessions from the seller. when interest rates are very low as they have been for a very long time this props up the housing market and makes real estate attractive. thing is its hard to time real estate markets. they dont turn on a dime. furthermore real estate is local. areas that are in high demand are cities and towns that people really want to live in because of perceived quality of life, schools, job market, natural beauty etc. prices are often more stable in those places and less subject to booms and busts.
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