Is now the best time to buy a home?

If you’re trying to decide whether now is the right time to buy a home, it’s important to understand how the housing market works and whether you’re financially and emotionally ready to take on such a large commitment.

Here are some of the most important factors to consider.

A snapshot of the current housing market

The benefits of buying a home

Running the numbers on buying vs. renting

8 tips for buying a house the smart way

The bottom line: Is it time for me to buy a house?

There are several market forces that influence the overall affordability of housing, and can therefore affect your personal decision.

In this section, we’ll look at the current state of three main factors: mortgage rates, home prices, and inventory levels.

As with the stock market, you can’t know for sure how mortgage interest rates will change over time. You can, however, make predictions based on some underlying factors.

According to Tendayi Kapfidze, chief economist at LendingTree, mortgage rates are significantly higher than they were six months ago. Indeed, the following chart from Freddie Mac shows a steady climb starting in September, followed by a sharp climb in rates more recently:

Kapfidze points to two factors that have helped push rates higher.

“The first thing is that the Federal Reserve, since September, has been reducing its holdings of Treasury securities and mortgage-backed securities,” he said.

The Federal Reserve began the program of buying up these holdings in response to the financial crisis that began a decade ago. The idea was to lower interest rates to encourage businesses to invest and help the economy grow.

Kapfidze says that this reduction in the Federal Reserve’s holdings lowers demand for Treasury bonds and mortgage-backed securities, “If you reduce the demand, the price falls,” he added, “which in this case means that interest rates go up.”

The second factor, according to Kapfidze, is the recent behavior of Congress, which passed both the Tax Cuts and Jobs Act and a sweeping budget bill recently.

“Both of those things are projected to increase the U.S. budget deficit pretty significantly,” said Kapfidze. “They’re going to be issuing a lot more Treasury bonds, and because they’re adding a lot of supply and we have a reduction in demand, that’s also pushing up the interest rates.”

If you thought home prices were high when the housing market bubble burst in 2007, take a look at how they’ve grown since the market recovered.

If you’re concerned that the market will see another correction soon, you might not want to risk getting caught up in it. It’s difficult to predict if and when a correction will happen, so it’s often not advisable to try to time the market.

One thing to keep in mind, though, is the correlation between interest rates and home prices.

“As mortgage rates go up, that does put some downward pressure on home prices, but it does it with a lag,” said Kapfidze. “If you were to run a correlation between mortgage rates going up this year and home prices three years from now, you’ll probably see a little slower appreciation in home prices.”

With fewer homes on the market and growing demand, sellers have less competition and therefore more opportunity to increase prices. But Kapfidze doesn’t see that acting as a deterrent for homebuyers.

“Given the strength of demand in the housing market today, I think you’ll probably still see pretty strong growth in home sales this year,” he said.

Buying a home is a major financial commitment and should not be taken lightly. But it also comes with some significant benefits, both financial and otherwise, that may factor into your decision.

With the new tax law in effect, the standard deduction has increased from $6,500 to $12,000 for single taxpayers and from $13,000 to $24,000 for married couples filing jointly. As a result, fewer homeowners find it worthwhile to itemize their deductions and therefore take advantage of the mortgage interest and property tax deductions.

So if, for example, you buy a house for $200,000 and sell it years later for $300,000, that $100,000 gain would be completely tax-free as long as you meet the eligibility requirements.

So long as home sales remain strong, a home is an appreciable asset, which means that its value typically grows over time. And every monthly payment you make increases the amount of the home that you actually own — your equity — which means that you are building wealth along the way.

All of which is to say that owning a home functions as a sort of forced savings program. By continually contributing money to an appreciable asset, you can build long-term wealth.

If you opt for a fixed-rate mortgage, your monthly payment is locked in for the length of your loan term. This is in contrast to renting, where your monthly payment can change every time you renew your lease.

While homeownership can provide financial benefits, many people simply want the freedom to create a home that makes them happy.

As a homeowner, you don’t have to ask permission to paint the walls, replace the floor, add a room or get a pet. For the most part, you have complete control to do what you like.

Of course, this may mean spending more money on home improvements. But if it’s in pursuit of turning your house into a home, it may be worth the costs.

The choice to buy or rent isn’t always an easy one, even if you’ve done your homework. But it’s always helpful to run the numbers to see which route is more likely to come out ahead.

It generally makes more sense to buy if you plan on living in the home for an extended period of time.

The less time you plan on staying in the home, and the greater the associated costs of your home are — such as interest rate, property taxes, insurance, and maintenance — the less likely it is that buying will be the better financial decision.

While there is no golden rule, there are certain variables that generally argue one way or the other in the buy vs. rent debate.

Here are some of the major considerations:

Even if you’re ready to take the next step toward buying a house, the process can be daunting, especially if you’re a first-time homebuyer.

As you begin the house-hunting process, here are some tips to help you stay on the right track.

A mortgage is a long-term investment, so make sure your budget can handle both the monthly payment and all the other expenses that come with owning a home.

Given that the housing market crashed not too long ago, and that average home prices have now risen above what they were before the crash, you might be worried about buying at the top of the market and suffering through another downturn.

Luckily, there are plenty of tools that allow you to research the value of recently sold homes in your area, which can help you gauge whether the home prices you see are fair.

But this is where a good realtor will really shine. Realtors have access to databases that go back even further, and a good realtor will understand how to evaluate that data, find the right comparisons and explain it all in a way that makes sense.

And while this isn’t a loan offer or a guarantee, it both allows you to make an offer with more confidence and gives the seller more confidence that you will actually be able to follow through on your offer, increasing your odds of having it accepted.

Every time you apply for a credit card, loan or any other type of credit, the lender does a hard credit check that can temporarily knock a few points off your credit score.

It’s therefore wise to delay new credit activity until after you close on your mortgage in order to keep your credit score from dropping.

There are many different factors to consider, and a good mortgage adviser can help you understand your options and make the right choice based on your personal needs.

And you don’t have to worry about hurting your credit score by making several applications. As long as they are all within a 45-day window, the credit bureaus will count multiple credit checks from multiple mortgage lenders as a single inquiry.

Once you find the right house, you can work with your real estate agent to make a strong offer that’s within your budget.

At this point in the process, you may be confronted with competing bids, and it’s important not to get caught up in a bidding war that could put you in a difficult situation. You can potentially work with your realtor to make certainly reasonable concessions, but be prepared to walk away if the price gets too high.

With so many market and financial factors to consider, it can be hard to figure out whether it truly is the right time to buy. Schupak’s advice is to focus on what you can control.

“Don’t try to time interest rates,” Schupak said. “Instead, focus on items like purchase price, expected maintenance cost, insurance, HOA fees and real estate taxes. A forecast miss on those items often turns out to be much more costly than a higher interest rate.”

Casarez encourages people to be conservative and wait until you have a solid foundation in place that can help you navigate the ups and downs of this big transition.

“Sometimes the monthly cost of owning a house can be a big jump, and it can cause a lot of stress,” said Casarez. “The best time to buy a home is when you’re financially and mentally ready to do so.”