Personal-finance guru Dave Ramsey says it’s a great time to buy a house. Experts don’t agree.
Personal-finance guru Dave Ramsey says it’s a great time to buy a house. Experts don’t agree.
For the last several months, personal-finance guru Dave Ramsey has been telling aspiring homeowners that it’s a great time to buy a house — even though monthly housing costs are at a record high.
Back in November 2023, when the average 30-year mortgage rate was coming down from nearly 8%, he went all in on that call. “Right now is the best time to buy a house, in the next five years,” Ramsey said at the time. “Prices are not going to go down. … This is as cheap as it’s going to be in the next five years. This is the best price.”
Between then and now, rates went down — and back up again. And Ramsey, who says his shows attract 20 million listeners weekly, is still dishing out the same advice. “The housing market is heating up … so prices keep climbing,” he told TheStreet in April. “If you’re ready to buy, now’s the time.”
So, is it really a good time to buy a house?
Not necessarily, three financial experts told MarketWatch. “I don’t think you can categorically say that it’s the right time to buy a house without looking at someone’s specific circumstances,” John Petrofsky, a Bethesda, Md.-based chartered financial analyst at FBB Capital Partners, told MarketWatch in an interview.
“Homeownership is a major financial and lifestyle decision,” Sean Lovison, a Moorestown, N.J.-based certified financial planner and founder of financial-planning firm Purpose Built, told MarketWatch. “It’s important to remember that real estate has no one-size-fits-all answer.”
And even if pundits like Ramsey are advising one to jump in, be wary, experts told MarketWatch. “The fear of missing out can lead to poor decisions,” Lovison stressed.
“Buying a house is a long-term commitment,” he added, so prioritize financial stability instead of “succumbing to market pressures or keeping up with the Joneses.”
It’s cheaper to rent than buy in the top 50 metro markets in the U.S.
Most Americans don’t agree with Ramsey’s assessment of the housing market: Housing-finance giant Fannie Mae runs a monthly survey where it records home-buying sentiment, and in its latest report, it found that only 21% of consumers believe it’s a good time to buy.
The biggest reason people aren’t keen to buy is high borrowing costs: The 30-year mortgage averaged 7.22% as of May 2 — more than double what it cost three years ago, when it averaged 2.96% on May 6, 2021.
A home buyer looking at a median home sale price of $383,725 would be facing a monthly housing payment of $2,843, which is up 13% from a year earlier, residential real-estate brokerage Redfin said last month. That’s a record high.
Meanwhile, rents are stagnating after climbing precipitously during the pandemic. In March, rent prices only rose 0.6%, while the nationwide median rent is $1,388 per month, according to a monthly report by Apartment List. And given that the number of housing units under construction is also at a record high, renters in supply-rich areas should see prices stay stable for the time being.
“In most major cities around the country, it’s cheaper to rent than to buy, given where interest rates are,” Petrofsky said. In every one of America’s 50 largest metro areas, it is more affordable to rent than to own, according to recent research from Realtor.com.
“With rents continuing to fall and the cost of buying a home remaining high” due to mortgage rates and home prices, “renting a home is now a more cost-effective option in all major U.S. markets,” Danielle Hale, chief economist at Realtor.com, said previously.
(Realtor.com is operated by News Corp subsidiary Move Inc. MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)
So what’s behind Ramsey’s pro-buying stance?
“We’ve created this culture of almost worshiping homeownership — it’s like the holy grail to everything, and it’s not — it’s OK not to be a homeowner,” Tania Brown, an Atlanta-based certified financial planner with OfColor, told MarketWatch.
Owning a home also comes with additional responsibilities such as maintaining the home, which requires time and money, she stressed. “When stuff goes out in your apartment, you call a landlord. When stuff goes out in your home, you write a very large check,” Brown said. “So it’s OK to rent. You’re not throwing money away — you’re doing what economically makes sense for you right now.”
Home-price appreciation shows signs of slowing down
Ramsey has previously said that the current economic environment presents an opportunity to build wealth, because home prices don’t show signs of crashing.
In that aspect, “Ramsey makes valid points,” Lovison said.
“Housing supply is tight and that isn’t going to improve anytime soon — [and] tight supply drives up home prices,” Gary Watts, a Walnut Creek, Calif.-based certified financial planner at Wealth Investment Group, told MarketWatch.
And if rates drop in the near term, home prices could continue to rise as demand picks up, he noted. Refinancing in the future is a potential option for people who are able to buy now, albeit one that comes at a fee.
So “Dave’s right,” Watts added. “When interest rates go down … more people will qualify for a mortgage. This will create more buyers for an already tight housing market, driving prices up further.”
Additionally, the more one’s home appreciates, the more wealth they accumulate through what is commonly referred to in the personal-finance community as a “forced-savings plan.”
Home prices have been rising throughout the pandemic and into the post-pandemic world, and continue their march upward due to the unique lack of supply the market faces. That’s fueled in part by the so-called lock-in effect, referring to people who are unwilling to sell their current home because they don’t want to lose their relatively cheap mortgage rate.
Recent analysis by the Center for American Progress, a liberal think tank, found that average housing wealth rose $22,000 between 2019 and 2023 for homeowners under 40, which led to an overall increase in younger Americans’ wealth.
But there is no real urgency to buy, according to experts, as the rate on the 30-year mortgage has stayed elevated while home prices are now appreciating at a slower pace. In March, the national average home price posted the smallest gain in over a year, according to Moody’s Analytics House Price Index.
“At the end of the day, rates are a big part of affordability. So yes, someone might miss out on some appreciation over the course of the next 18 months if they don’t buy now,” Petrofsky said. “But if they can buy at lower rates [in the near future] … it might make sense to rent for another year or two, and save up more money and have a lower interest rate to contend with over the next 30 years.”
For instance, if renting is a lot cheaper than buying at the moment, aspiring homeowners could invest the difference, if they are able to, in assets such as stocks, bonds or even money-market funds, to grow their money while they wait to buy, Petrofsky added.
Brown also suggested that people interested in buying a house look into local or state-level home-buying programs that can help them afford one. For instance, housing counselors can share state or local down-payment assistance programs that can bring down the cost of buying a home.
Aspiring homeowners can also consider “house hacking,” she advised. If they buy a duplex, they can live on one side of the property and rent out the other, which can offset living costs, she explained.
That was Watts’ strategy when he bought a home. The California-based financial planner said he bought his first property in 1987, when mortgage rates were over 9%. “It was a duplex. I lived in one half and rented out the other half as a way to manage expenses [and] cash flow and capture some tax breaks,” he explained. “I refinanced later when rates came down. Today’s buyers may have to continue to think creatively.”
But to be sure, today’s housing market is a lot different than in decades past, Brown noted. When she bought her first home in 1997, she could still find houses in the South for less than $100,000, she said. Her mortgage rate was 7.5% then, close to where rates are in 2024 — but her home was so cheap that her monthly housing payments were less than how much she would pay in rent, she said, at around $500.
Today, a typical home in Atlanta is valued at nearly $400,000, according to one estimate by online real-estate marketplace Zillow while wages haven’t kept pace. Nationally, home prices rose 4.8% in March from the previous year, while wages and benefits rose 4.2% over the same period.
“There’s so much more to a house than just the mortgage,” Brown stressed. “Sometimes people don’t realize how quickly those extra costs can add up.”
Ramsey’s connection to the real-estate industry
Ramsey, who cultivates a tough-talking image and berates people who carry debt, has a reason why he’s so pro-real estate. He grew up in the business, and he says it helped him build his own wealth.
“I’m a real-estate guy,” Ramsey said in a YouTube video posted in September 2022. “Mom and daddy were in the real-estate business, [I] got my license … when I was 18 years old. … I’ve got probably $600 million worth right now … paid for.”
“I love real estate,” Ramsey added.
The personal-finance pundit’s business also has connections to the industry: Ramsey has a publicly disclosed affiliation with a mortgage lender, Churchill Mortgage, which is prominently featured on his website.
Ramsey’s company did not respond to a request for comment.
Some local real-estate markets show signs of overheating
One cautionary note for anyone eyeing a home purchase: With rates and prices staying high, housing markets in many parts of the nation are leaning toward being overvalued, Mark Fleming, chief economist at First American, wrote in a recent blog post.
Out of the top 50 markets in the U.S. that First American tracks, 22 were overvalued in March, Fleming said — which means that the median existing-home sale price exceeded how much a person earning median income could buy.
“The number of overvalued markets has increased since our last analysis of overvalued markets in July 2022,” Fleming wrote, noting how only 15 markets were overvalued then.
The most overvalued market was San Jose, Calif., where the median sale price of a home was $1.43 million in March — nearly double the median consumer’s house-buying power of $732,000.
Los Angeles, San Francisco, San Diego and Seattle followed San Jose in terms of being overvalued.
So for people looking to buy real estate, be prepared, Lovison advised.
“Patience is crucial in finding the right home at the right time,” he explained.
And when presented with information on social media or elsewhere online, be wary, Lovison added.
“Treat social-media financial advice with healthy skepticism,” he said. “Use it as inspiration to research further, and ultimately consult with qualified professionals to tailor plans for your needs.”
See also: Robert Kiyosaki, author of ‘Rich Dad Poor Dad,’ says he’s more than $1 billion in debt — but that’s ‘not my problem’