With Inflation Rising, Should You Still Buy a Home?
You see soaring prices at the grocery store, at the gas station, at the car dealership – and in the housing market. Not only are prices for homes rising, but mortgage interest rates are also high compared to what they were just a year ago. The high prices are the result of inflation.
So the question is when you are looking for a home, with rising inflation, should you buy now - or wait for home prices to come down?
What is Inflation?
Inflation happens when prices for practically everything go up. Experts say that a “low and slow” rise in inflation is sign of a favorable consumer-driven economy. Ideally, they look for an inflation rate of around 2% per year. But in July 2022, the inflation rate was a whopping 8.5%.
Why? It all comes down to supply and demand.
When demand is high and supply is limited, prices go up. And now supplies are limited for any number of reasons – supply chain issues, the pandemic, lockdowns in China and Russia’s war on Ukraine are just a few of them.
Curbing Runaway Inflation
To get inflation under control, the Federal Reserve raises interest rates. Higher interest rates lead to higher borrowing costs. With higher borrowing costs, consumers will spend less. And when there is less demand, prices come down - eventually.
The Fed walks a tightrope between cooling down inflation and causing a recession with stifled economic growth. The goal is to get the economy back to that ideal 2% inflation rate.
The Federal Reserve began to raise interest rates in March 2022, the first increase since 2018. If inflation remains high, you can expect to see the Fed raise interest rates again – and again.
So how do the actions of the Federal Reserve affect you as a homebuyer?
Inflation and the Housing Market
When the Fed raises interest rates, mortgages are more expensive. When mortgages cost more, there are likely to be fewer buyers, which may cause housing prices to fall. But keep in mind that home prices are subject to supply and demand, and right now demand is strong and there is a very tight supply of homes in many markets.
Buy Now, or Wait?
Unless you have a crystal ball, it is impossible to pinpoint the right time to buy a home. But if you are thinking about moving, there are some advantages to buying a new home right now instead of waiting it out.
Here are some things to consider if you are thinking about buying a new home.
- Mortgage Interest Rates Are Historically Low
While the national average for a 30-year fixed rate mortgage is now 5.60%, higher than last year at this time when mortgage rates hovered around 3%, historically speaking that rate is low. That may seem like a high number, until you realize that the average mortgage rate for a 30-year fixed mortgage from 1971-2022 is 7.77%.
- Mortgage Interest Rates Are Expected to Rise
Nobody knows how long it will take the Fed to bring down inflation. If inflation rates remain high, the Fed is likely to raise interest rates several more times to bring inflation under control. As a homebuyer, you should be aware that when mortgage rates go up even further it will cost you more for your mortgage payments each month.
- Home Prices are Not Declining
The price of homes may not be increasing at the fast and furious rate of recent months, but real estate prices are not falling. Experts predict that while rising mortgage rates and more inventory on the market will probably lead to slower price increases, we are unlikely to see a decline in home prices any time soon.
- The Price of Your Home is Likely to Rise
If historic trends are any indication, you can expect the price of your home to increase over time. As home prices in general continue to appreciate, the value of your home is likely to rise as well.
- Home Ownership is a Hedge Against Inflation
Owning a home is considered a classic hedge against rising inflation. Real estate is a tangible asset that tends to hold its value in inflationary times, unlike other volatile investments like the stock market.
- You Can Grow Your Wealth More Quickly
The sooner you buy, the faster you can build equity in your home and grow your wealth. You build equity as you pay down your mortgage, and as your home appreciates in value.
- Home Ownership Means Stability
If you have a mortgage, you lock in your payments for the duration of the loan – which may be as much as 30 years. Locking in what is likely to be your largest monthly payment – your mortgage - can help you stabilize your expenses. You will have peace of mind knowing what to expect to pay for housing.
Buying a Home in the Finger Lakes
You can count on Kelli Ide to give you guidance about deciding on the right time to buy a home in the Finger Lakes region. She can talk to you about your current situation and explain the best path forward to move to the home of your dreams, whether that is a permanent residence or a vacation home.
As an experienced professional real estate agent, Kelli can help you make smart decisions about buying or selling real estate during these inflationary times.
Kelli Ide offers a unique, concierge-style approach to real estate, including staging, photo styling and market preparation services exclusively for clients to give them an edge over the competition. For further information about buying or selling a home in New York's Finger Lakes, visit kelliide.com.