Singletary: Five reasons why now is not a good time to buy a house

Homeownership for many is the key to achieving the American Dream of prosperity. But does it make sense to defer that dream in a still-recovering economy?

At a time of high inflation and rising interest rates that sage advice to buy a home may not be in your best financial interest.

Some folks, in part because of rising interest rates, are realizing now is not the right time to buy. In June, close to 15% of home-purchase agreements fell through as buyers backed out of their contracts, according to an analysis by Redfin.

Here are five reasons you shouldn't buy a home right now:

Home prices are still too high

Although the housing market is showing signs of cooling down, it's still pricey for many families.

About half of Americans — 49 percent — say the availability of affordable housing in their local community is a major problem, up 10 percentage points from early 2018, according to a Pew Research Center report released at the end of 2021.

And can I throw in this extra piece of advice?

Don't overestimate the tax advantage of homeownership. Often, home buyers point to a mortgage deduction as a big reason to buy a home. Yet many homeowners with mortgages don't receive the tax break because they don't itemize their federal tax returns.

The 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction, resulting in fewer taxpayers itemizing deductions on their tax returns.

You need time to build a better credit history

With interest rates rising, you need to do what you can to get your credit score as high as possible. FICO, the scoring model most lenders use, ranges from a low of 300 to a high of 850.

"A higher credit score helps ensure that you'll qualify for the most affordable mortgage loan," said Bruce McClary, senior vice president of membership and communications at the National Foundation for Credit Counseling. "Rising mortgage interest rates make it even more important to review your credit report and address any items that might negatively influence your score."

McClary highly recommends aiming for a score over 700.

"Because mortgages represent large loans that last for a long time, improving your credit score could save you a ton of money," points out Ted Rossman, senior industry analyst at Bankrate.com and CreditCards.com. "It's especially important to do whatever you can to improve your score before applying for a big-ticket item such as a mortgage."

It will wipe out all your savings

If purchasing a home will clean out your rainy-day fund, you might want to rethink your timing.

As a homeowner, the maintenance and repairs of your property are on you. If you want to keep up your property value or increase it over time, you have to maintain it, which may mean making home improvements.

I'll just get a home warranty policy, you might argue.

Based on my own experience with various home warranty policies, having one doesn't guarantee you will get your appliance repaired or replaced in a timely manner. For each visit to fix something that was broken, I had to pay a service fee ranging from $100 to $125, which is on top of the monthly or annual fee for the policy.

"Warranty companies are the subject of thousands of complaints and negative reviews at consumer agencies and groups such as the Better Business Bureau," according to a review by Washington Consumers' Checkbook and Checkbook.org. "Even the most comprehensive plans include long lists of fine-print exclusions."

High monthly mortgage payments won't leave much in your budget

If you buy a home before you are economically ready, it can drag you down financially.

There are signs that the hot housing market is cooling

A year ago, the average 30-year fixed rate was 2.9 percent.

As of July 7, following months of increases, the 30-year fixed rate dropped slightly, to an average of 5.30 percent, according to Freddie Mac.

In an effort to beat back inflation, the Federal Reserve began pushing rates up.

Heed this prospective from Freddie Mac: "While the drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown."

Yes, homeownership is one path to prosperity. But patience in the current economic environment can also work in your favor.