Sometimes, waiting until the right time of year to buy something can help you save some serious money. The end-of-year holidays just around the corner. Retailers are currently gearing up to offer their best deals on cookware, electronics, tools, and appliances.
If you’re looking to buy a home, you may wonder if there’s a similar best-time-of-year to get a good deal on your mortgage.
We’ve got good news. There is a best time of year to get a good deal on your next home purchase, though maybe not in the way you’d expect.
What History Can Tell Us About the Best Time of Year for Mortgage Interest Rates
The Federal Home Loan Mortgage Corporation (FHLMC)—better known as Freddie Mac—has published the average interest rate on a 30-year fixed mortgage in America every month since 1971. And in that 46-year stretch, the interest rates on mortgages have varied significantly.
(Here’s a fun Thanksgiving dinner activity for people under forty-years-old. Ask your folks about the double-digit interest rate they paid for the home they bought during the Reagan administration.)
But even though interest rates have varied over the decades, it turns out that interest rates don’t vary just an awful lot month-to-month, most of the time. The largest change in average mortgage interest rates in a single month was a drop of .08%, from November 2008 to December 2008. (And that drop in mortgage interest rates probably had a lot to do with the 2008-2010 housing crisis, which was by then in full swing.)
When we analyze the Freddie Mac data, there’s no predictable pattern for what time of year mortgage interest rates go up or down. What is apparent is that changes in average mortgage interest rates tend to be small and steady from one month to the next.
Do Small Fluctuations in Interest Rates Matter?
When you’re looking at a mortgage for hundreds of thousands of dollars, tiny changes in interest add up.
For example, let’s imagine you’re considering a $200,000, 30-year fixed-rate mortgage. If the interest rate goes from 4% to 4.5%, your payment amount goes up by $58 each month. Doesn’t sound like a lot? How about this: paying that extra half-a-percent on your $200,000, 30-year mortgage? You’ll pay more than $21,000 in additional interest by the time you finish paying for your home. That’s enough for a week in French Polynesia. Or a sensible new car.
If you’re thinking about buying a home soon, there is good news. Based on the available data, there’s no evidence to suggest that waiting for a particular month or season of the year will get you a better deal on your mortgage.
So When is the Best Time of Year to Buy a Home?
Mortgage interest rates may not change predictably from month to month or season to season, but home prices do.
If you want the best deal on your mortgage, consider buying a home when prices are at their lowest: late fall and early winter.
Home prices peak just about every year in the summertime. Yes, shopping for a home in the summer months means you’re likely to see plenty of available homes on the market. But summer home buying also means lots of other buyers. Competition can lead to bidding wars and sellers who reject offers to hold out for a better deal.
The very best deals to be had on homes happen in winter. Sellers whose homes have been on the market since the summer will likely be extra motivated to sell. The conventional wisdom is that serious homebuyers start looking in the spring. Home sellers who list in the winter anyway are generally interested in selling quickly and with minimal fuss.
How Much Can I Save By Buying at the Right Time of Year?
Homebuyers who buy in late December pay an average of $3,100 less than they might have paid for a similar home in May. And of course, that’s just the national average. In tight real estate markets, the savings can be even more significant. Buying a home in Denver in late December can shave more than $7,300 off a home’s final price tag.
If you’re worried there just won’t be enough homes on the market in your area, you may be in luck. A new report from the folks at Trulia suggests that for first-time homebuyers and others looking for smaller ‘starter’ homes, October through December generally offers the best selection of available housing inventory.
Families ’trading up’ to larger, kid-friendly homes generally want to do their home shopping in the summertime. Summer moves make transitions easier for their school-aged children. In the fall and early winter, their previous homes go on the market, often at a slightly discounted rate.
You may not be able to count on lower mortgage interest rates at a certain time of year. But if you’re a first-time homebuyer willing to juggle holiday obligations and house hunting? Then now is an excellent time of year to save money on your home purchase and your mortgage. (If you’re ready to get the mortgage sorted out, we’re ready to help.)