Home Sales Have Fallen 10 Months in a Row. Does That Make It a Good Time to Buy?

Should you jump at the opportunity to buy, or sit tight?

It's hardly a secret that the demand for homes has slowed down considerably this year. We can thank expensive borrowing rates for that.

Although mortgage rates dipped modestly in December compared to where they sat months prior, at this point, those who take out a mortgage are looking at more than twice the rate they would've gotten at the end of 2021. And that, combined with still-elevated home prices, has led to a notable decline in home sales.

In fact, existing home sales have now declined for 10 consecutive months, according to recent data from the National Association of Realtors (NAR). The question is: Should buyers rush to purchase a home in light of this trend? Or does waiting pay off?

It's not a good time to buy

There's a reason home sales have fallen in the course of 2022 -- it's really not a great time to be buying. If you purchase a home today, you'll be hit with a higher mortgage rate and a higher home price than normal.

Plus, there's still a glaring lack of housing inventory to contend with. The NAR reports that as of the end of November, there was only a 3.3-month supply of available homes on the market. For context, it generally takes a 4- to 6-month supply of homes to meet buyer demand in full. So not only might you get stuck paying more for a home today, but you might also get stuck having to compromise on the home you end up with due to a very limited selection.

Make sure you can afford to buy

You may decide that you've waited long enough to become a homeowner, and that you're just plain going to take the leap, even with housing prices and mortgage rates being up. But if that's the case, you'll want to make sure you're not getting in over your head. And to that end, the 30% rule can guide you in the right direction.

The rule essentially states that your monthly housing costs should not exceed 30% of your take-home pay. But your mortgage payment isn't the only expense to account for in that equation. Rather, your total housing costs should come in at 30% or less of your take-home pay. Those include things like property taxes, HOA fees, if they apply to you, and homeowners insurance costs.

If you can stick to that 30% threshold, then you're in pretty good financial shape to buy -- even if you do get stuck with a higher purchase price and mortgage rate than you'd like. And remember, mortgage rates are apt to drop at some point down the line. Once they do, you can always try to refinance your mortgage and lock in a lower interest rate on it.

It's definitely still a tricky time to buy -- there's no question about it. So while you may be motivated to dive in after seeing that home sales have been declining, that doesn't necessarily set the stage for a successful endeavor.