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Good news home buyers, there's economic uncertainty.
Wait, what?
The threat that tariffs may resurrect inflation combined with worries about layoffs is certainly not pleasant to hear. However, it's the kind of pressure that puts a lid on mortgage rates. No one is predicting home loan interest rates to plummet, yet anything under 7% is still below the 50-year average for 30-year mortgage rates.
Considering all of the factors that exist in the 2025 housing market — is it a good time to buy a house?
Read more: How inflation impacts mortgage rates
In this article:
Understanding the 2025 housing market
Mortgage rates
In the past 12 months, 30-year mortgage rates slipped to a low of 6.08% in late September but haven't met that low-water mark again. According to Freddie Mac, the highest rate over the same period has been 7.22%.
“In the near term, we expect mortgage rates to remain in a fairly narrow range, between 6.5 and 7%, which should support the spring housing market,” Mike Fratantoni, chief economist for the Mortgage Bankers Association, said in an analysis following the Fed's March 19 decision to leave short-term interest rates unchanged.
To navigate today's mortgage rates, consider:
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More than half of home loan borrowers (56%) only get a preapproval from one lender. That reduces your bargaining power and limits an opportunity to find a better interest rate from a more business-hungry lender. Zillow research says that 45% of first-time home buyers who shop multiple lenders got a better rate.
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Putting down a larger down payment can earn you a better mortgage rate.
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Some buyers get below-market mortgage rates by negotiating a buydown or special financing from a seller or builder.
Take action: Use a mortgage calculator to determine the monthly payment you can afford. You can then find the home price, down payment, credit score, type of home loan, and mortgage interest rate to get you to your home-buying goal.
Read more: How to get the lowest mortgage rates
Home inventory
A big squeeze on home buyers is the shortage of houses. Freddie Mac estimates the U.S. has a deficit of 3.7 million houses to buy or rent.
"It took us about a decade to get into this housing deficit, and it's probably going to take us about a decade to get out," said Rob Dietz, chief economist for the NAHB, in an article.
"Our expectation that home sales activity will remain limited, combined with the elevated rate environment, reaffirms our view that on a national level the 2025 housing market is shaping up to feel a lot like 2024," Mark Palim, chief economist for Fannie Mae, said in a press release. Freddie Mac estimates 5.8 million houses have been added to the market in the past four years. Unfortunately, demand has increased by an equal amount.
Take action: Consider expanding your search to more affordable areas close to your favorite neighborhood if it's too pricey.
Dig deeper: How much house can I afford? Use the Yahoo Finance affordability calculator.
New-home construction
New home construction soared nearly 11.5% in February. However, home builders are still anxious about tariffs.
“With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs,” said National Association of Home Builders Chief Economist Robert Dietz in a press release.
Realtor.com expects 1.1 million new homes to be built this year. That's nearly a 14% increase over 2024 — with builders focusing on smaller, more affordable houses.
Take action: If you want to buy a house now, consider new construction. You may be able to choose some finishes or make an even better deal on a spec home that's been on the market for a while.
Learn more: Buying a new construction home — Pros, cons, and how to finance it
Home prices
Home prices rose in February by a fraction (0.4%) — and that was the slightest increase since last July. Yet, year-over-year, values rose 5.1%, according to Redfin.
“There’s some good news for both buyers and sellers as we enter the Spring homebuying season," said Redfin senior economist Sheharyar Bokhari. The recent decline in mortgage rates and slowing price growth is bringing more home hunters off the sidelines, an encouraging sign for potential sellers.”
Home sales are expected to grow, if only slightly, in 2025. The consensus among the experts is that some 4 million existing homes will be sold in 2025 — about the same as in 2024.
Take action: Look for homes with price reductions where you want to live. Some apps, like Realtor.com and Trulia, will trigger an alert for sales price adjustments on homes you're interested in. Then, negotiate even harder.
Learn more: When will housing prices drop?
Is it a good time to buy a house?
To answer the question of whether it's a good time to buy a house for you personally, you must look beyond broad market forces. Buying a home is more than considering macroeconomic factors. It's an important life decision based on your personal and financial situation.
Have questions about buying, owning, or selling a house? Submit your question to Yahoo's panel of Realtors using this Google form.
Where do you want to be in 5 years?
When you rent, the decision to move is broken down into six months, or a year or two at a time, as your lease renews. But every dollar-related detail makes a home purchase a medium- to long-term investment. Buying a house includes various costs: the down payment, closing costs, and financing fees, moving expenses, property taxes, and perhaps selling the house you're in now.
Homeownership requires a long timeline. How you make a living, your friends, family, and even community amenities all come into play.
Dive deeper: Should you buy a house? How to know if you're ready.
Your income
A primary consideration: your job. Will it require a location change anytime soon, or can you live where you please? Is your income steady and all but assured?
Your credit score
One of the significant factors that will qualify you for a home loan is your credit score. It's important to know it before applying for a mortgage.
For the most common loan, a conventional mortgage not backed by a government agency, you generally need a FICO Score of 620 or better.
FHA loans can allow a credit score as low as 580 with 3.5% down. VA loans issued to qualified military service members and veterans don't officially have a minimum credit score, though some lenders will require a FICO Score of 620.
Of course, minimum scores are the entry-level to qualifying; the higher your score, the better the loan terms you'll be offered. Most importantly, that can mean you'll pay a lower annual percentage rate over the life of the loan. You may also have more room to negotiate on fees.
As a benchmark to where you stand, the median credit score on a new mortgage in the second quarter of 2024 was 772, according to the New York Federal Reserve.
Read more: The credit score needed to buy a house in 2025
Your current debt load
A primary financial metric lenders will use to determine your creditworthiness is your debt-to-income ratio.
Fannie Mae, a government-sponsored entity that provides liquidity to the home loan market, looks for a maximum total DTI ratio of 36% of "the borrower’s stable monthly income." Exceptions can allow for total DTIs up to 50%, but it's usually best to avoid working on the edges of qualification if you can.
You can calculate your DTI by dividing your total recurring monthly debt by your gross (before taxes and other deductions) monthly income.
Include debt such as monthly mortgage payments (or rent), real estate taxes, and homeowner's insurance. Also, add any car payments, student loans, and the monthly minimum due on credit cards. Remember any personal loan payments and child support or alimony.
Do not include debt such as monthly utilities — like electricity, water, garbage, or gas bills — or car insurance, television streaming subscriptions, or cell phone bills. You can also exclude health insurance costs and miscellaneous expenses such as groceries or entertainment.
Your savings
Having a cash cushion in the form of emergency savings shows lenders that you are prepared for the unexpected. Of course, that savings account should also include …
Your down payment
A large chunk of your savings account should be dedicated to the down payment. A minimum of 3% down is required in order to qualify for a conventional loan targeted to first-time home buyers — or ideally, 20% to avoid private mortgage insurance. Yes, zero-down options exist if you are eligible for a VA- or USDA-backed loan.
According to Realtor.com, the median down payment in the third quarter of 2024 was 14.5% — about $30,300.
Dig deeper: How much down payment do you need to buy a house?
Your next move
Buy smart and shop a lot. Relentlessly shop interest rates and mortgage lenders for the best loan offers and justified fees. Get a written preapproval from your lender, then shop for a house you can love and can afford. Your home buying competition is.
According to Zillow, when it comes to first-time buyers versus repeat buyers, first-timers are more likely to reach out to at least three lenders and three real estate agents.
Learn more: The best mortgage lenders for first-time home buyers
FAQs: Is it a good time to buy a house?
Should I buy a house now or wait for a recession?
Mortgage rates tend to fall during economic downturns, so a recession would definitely qualify as a time when rates would likely drop. However, lower rates generally increase demand as more buyers enter the market, so house prices would likely rise. Buying a house at a time when both mortgage rates and home prices are favorable is a challenge. You probably shouldn’t try to time the housing market by waiting for a recession. Buy when it makes sense for you personally.
Should I buy a house before rates drop?
"Buy now" advocates might say that if you find the right house at the right price — and you're financially set — you should purchase the home now and look to refinance later. But what if mortgage rates don't drop substantially enough to justify a refinance in a few years? Only buy a house when you are comfortable with the terms you can get on closing day.
Is now a good time to lock in a mortgage rate?
Locking in a mortgage rate is a short-term decision, generally lasting only 30 to 60 days — sometimes up to six months. There's little reason to agonize over it. Be comfortable with the rate on your Loan Estimate and start packing boxes.
Will U.S. housing ever be affordable again?
Homes become more affordable as your income and savings grow. Ask any homeowner: Buying that first house was a stretch. The monthly payment loomed large. As months and years go by, it becomes less of an issue. Then, as home prices continue to rise, you're on the right side of the equation: The growing equity builds your net worth.
This article was edited by Laura Grace Tarpley.
