Why Graham Stephan Says That Now Is a “Terrible” Time to Buy a House

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It’s really not a favorable market for buyers. 

A lot of people have struggled to buy a home over the past few years. We can thank factors like record-high prices and limited inventory for that. But at this point, home price gains have been slowing. And mortgage rates, though still high, are lower than they were in late 2022.

As such, you may be inclined to go out and purchase a home, especially if you’ve been saving diligently for one. But if you ask investing and real estate guru Graham Stephan, he’ll tell you that buying a home today is a pretty bad idea.

Why it’s a “terrible” time to buy a home

In a recent tweet, Graham Stephan point-blank said, “Now is a terrible time to buy a house.” And he cited a few different reasons:

Mortgage rates are highFed rate hikes are unpredictableNational housing prices might drop further

Let’s dive into each of these, because they’re important factors to understand.

Mortgage rates

Today’s mortgage rates, though lower than they were late last year, are almost twice as high as they were a year ago. Now, if home prices were more affordable, then it would be easier to make the case that signing a mortgage loan with a higher interest rate attached to it isn’t the worst thing. But home prices aren’t affordable. Gains have slowed down, which means sellers aren’t raking in the same large profits they were a year ago. But they’re still profiting nonetheless.

Federal Reserve rate hikes

Now let’s talk about Federal Reserve rate hikes. The Fed isn’t done trying to slow the pace of inflation. As such, it’s likely to keep raising interest rates this year.

The Fed does not set mortgage rates. But when the Fed raises its federal funds rate, which is what banks charge each other for short-term borrowing, the cost of consumer borrowing tends to rise, too.

Interestingly enough, sometimes mortgage rates can rise and fall independently of what the Fed is doing. Last year, for example, mortgage rates began to climb before the central bank got aggressive with its rate hikes. But still, the Fed’s actions could make other types of borrowing more expensive. And the fear is that expensive borrowing will lead to pullback in consumer spending, which could ultimately spur a recession.

So all told, there’s a lot of economic uncertainty to grapple with right now. And taking on a major expense like a home loan may not be the best move in light of that.

Home prices might drop

Finally, let’s talk about home prices. They’re high today, but many experts are convinced they’ll continue to trend downward.

When you’re buying a home as a place to live, rather than as an investment, then you don’t have to worry so much about what your home might be worth in a year or two from now. But you also don’t want to end up underwater on your mortgage, so it may not be a good idea to buy a home at a time when prices are up but likely to drop significantly.

Should you wait on a home purchase?

If you’ve been saving for a home for years and are struggling to find a quality, affordable rental, then you may want to move forward with a home purchase regardless of the issues Stephan brings to light. But otherwise, waiting to buy a home could work to your benefit.

There’s a good chance that home prices and mortgage rates will be lower a year from now than they are today. So sitting tight and being patient could be the better move, financially speaking.

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