Should You Buy A House When Prices Are Low or When Interest Rates Are Low? This Expert Has the Answer.

Here's how to make the savviest financial move as a home buyer.

When it comes to buying a home, your goal may be to purchase a place of your own at a time when mortgage rates are competitive and home prices are low. Unfortunately, today's real estate market won't give you either option.

Not only do home prices remain elevated on a national level, but mortgage rates are about twice as high as they were a year ago. And so even if you're a borrower with an excellent credit score, you're likely to spend a lot to finance a home purchase.

But today's housing market conditions won't last forever. And there may come a point when you can get a break on either your mortgage rate or your home's purchase price.

The question is: Is it better to spend less for a home and get stuck with a higher mortgage rate? Or should you try to snag the lowest mortgage rate, even if it means paying more for a home?

An expert weighs in

When it comes to deciding whether low home prices should trump low mortgage rates or vice versa, Humphrey Yang of humphreytalks says it depends. If you want a lower mortgage payment, he explains, then you should buy when rates are low. But if you want to be able to make a lower down payment on a home, then you should buy when home prices are low.

Now if you go the latter route and get stuck with a higher borrowing rate, you can refinance your mortgage down the line, once rates come down. But if you buy when borrowing rates are up, don't assume you'll be able to refinance right away. You could get stuck with higher mortgage payments than you want for years, so you'll need to make sure those truly fit into your budget.

Don't get in over your head

Buying a home in today's market is no easy feat. And even in a different sort of housing market, you can still easily run into affordability issues. So your best bet is to make sure your total housing costs don't exceed 30% of your take-home pay, whether you're buying at a time when home prices are high, mortgage rates are high, or both.

In fact, that 30% threshold should actually include not just your monthly mortgage payment, but also, your property taxes, homeowners insurance premiums, and any other predictable housing costs you can account for. Now there may sometimes be a little wiggle room with that 30% limit, such as if you're moving to a walkable city where your transportation costs will virtually be $0. But otherwise, sticking to that 30% rule could spare you a lot of financial stress in the course of buying a home.

Meanwhile, today's real estate market basically gives you the worst of all worlds as a buyer. Inventory is low, homes are expensive, and borrowing costs are the highest they've been in decades. So if you're in a stable housing situation and are able to wait on buying a home, that may be your best move.