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With All the Talk about Inflation is it Still a Good Time to Buy a House?

Vicki Moore
Nov 8 9 minutes read

Should You Still Buy a Home with the Latest News About Inflation?

While the Federal Reserve is working hard to bring down inflation, the latest data shows the inflation rate is still high, remaining around 8%. This news impacted the stock market and added fuel to the fire for conversations about a recession.

You’re likely feeling the impact in your day-to-day life as you watch the cost of goods and services climb. The pinch it’s creating on your wallet and the looming economic uncertainty may leave you wondering: “Should I still buy a home right now?” If that question is top of mind for you, here are some things to consider.

I’d like to be able to answer that question with a straight yes or no. Unfortunately, we can’t predict the future. We can look at history and have an expectation of what’s coming. But we can’t know for sure.  I can tell you what most experts predict for the housing market in the next few years. But, really, the best time to buy a house is when you’re ready.

All of these questions will help you decide if it’s right now. This is the most logical place to start.

Ask Yourself a Few Questions

1. Why am I buying a house?

This truly is the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with money. For example, a recent survey by Braun showed that over 75% of parents say “their child’s education is an important part of the search for a new home.”This survey supports a study by the Joint Center for Housing Studies at Harvard University which revealed that the four major reasons people buy a home have nothing to do with money. They are:

  • A good place to raise children and for them to get a good education
  • A place where you and your family feel safe
  • More space for you and your family
  • Control of that space

What does owning a home mean to you? What non-financial benefits will you and your family gain from owning a home? The answer to that question should be the biggest reason you decide to purchase or not.

2. How long am I going to stay in this home?

Homeownership is meant to be long-term. It takes time to recoup the buying expenses and for equity to build. A typical real estate cycle is 7 to 10 years. So you should plan to live in your house for a minimum of five years. If not, the costs of buying will overtake the benefits of owning. Flipping houses is a fairly new concept that is financially risky. It’s certainly not meant for the first-time buyer.

3. Are home prices going up or down?

We’re not going to see astronomical price increases as we have in the past few years. Most experts anticipate that prices will decline. This information varies depending on where you live and where you get the information. You can pretty much find information that says what you want it to.

It’s important not to rely on one source to help you decide. Try to review what several experts say and distill all the market news you get into what makes sense to you. You’re better off relying on middle-of-the-road reports than buying into anyone who is talking in extremes. Generally, when people are talking about crashes, bubbles, and disasters they’re usually giving extremes and looking for the most views on their YouTube channel.

4. Are mortgage rates going up?

Yes. The Federal Reserve has said that it will keep raising rates as a way to calm inflation.

They should have started increasing rates earlier this year in lower increments but this is the situation we have. Real estate is a significant part of our economy.

The National Association of REALTORS® reports that Real estate has been, and remains, the foundation of wealth building for the middle class and a critical link in the flow of goods, services, and income for millions of Americans. Accounting for nearly 17% of the GDP, real estate is clearly a major driver of the U.S. economy. It’s also a job creator. The National Association of REALTORS® estimates that every home sale generates two jobs. Using that ratio, 1,000 home sales generate 2,000 jobs.

In 2021, 6.12 million homes were sold which means approximately 12+ million jobs. Raising interest rates to curb people from buying is just one of the ways the Federal Reserve is increasing unemployment. That’s not a typo. The Fed is increasing unemployment.

Why? They’re trying to increase interest rates to keep people from buying. Unemployed people spend less money.

When will they stop raising rates?
Most economists say the Fed will likely stop raising interest rates at some point in 2023, but “where” rates peak — a level known as the “terminal” rate — is more important than “when.”

5. Speaking of money… Do you have the money now?

If you’ve been working towards buying a home, saving, getting reapproved and you plan to stay in the house at least five years, then maybe. It could be a good time to buy a house. But it’s a very personal decision.

Homeownership is Historically a Great Hedge Against Inflation

In an inflationary economy, prices rise across the board. Historically, homeownership is a great hedge against those rising costs because you can lock in what’s likely your largest monthly payment (your mortgage) for the duration of your loan. That helps stabilize some of your monthly expenses.

A fixed-rate mortgage will help keep your monthly costs stable. Yes, other expenses may go up.  But your mortgage, which is likely your biggest monthly payment, will stay the same.

And with rents being as high as they are, the ability to stabilize your monthly payments and protect yourself from future rent hikes may be even more important. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains what happened to rents in the latest inflation report:

“Inflation refuses to budge. In September, consumer prices rose by 8.2%. Rents rose by 7.2%, the highest pace in 40 years.”

When you rent, your monthly payment is determined by your lease, which typically renews on an annual basis. With inflation high, your landlord may be more likely to increase your payments to offset the impact of inflation. That may be part of the reason why a survey from realtor.com shows 72% of landlords said they plan to raise the rent on one or more of their properties in the next year.

Becoming a homeowner, if you’re ready and able to do so, can provide lasting stability and a reliable shelter in times of economic uncertainty.

Bottom Line

The best hedge against inflation is a fixed housing cost. If you’re ready to learn more and start your journey to homeownership, let’s connect.

My Advice

Both home buyers and sellers want to time the market.

Buyers want to buy when the prices are lowest.

Sellers want to sell when the prices are highest.

The problem with that is we only know when we were at the top or bottom when we look back on it months later.

You have to buy or sell when the timing is right for your situation.

Right now many buyers have been “priced out” of the market. Many of those buyers who were waiting for the market to change – for the prices to go down – can’t buy at all now because interest rates are too high. They no longer qualify for a home loan. They may never get to buy a house.

Home sellers who were waiting for the high point in the market missed it. There are no more multiple offers. Reducing the price is much more common than over-the-asking price offers.

Circumstances are rarely perfect. We don’t even know they’re perfect at the time. It’s all speculation. Some is educated and informed. But it’s still speculation.

Rates will go back down. And when they do, will we see multiple offers and over-the-asking-price offers again?

The one thing that hasn’t changed is the number of available homes. There is still a nationwide shortage of homes.

If you’re not ready to buy or sell right now, then don’t do it. But if you are ready, don’t wait for the perfect time. You’re may get burned. I’ve seen it happen many times.

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