Purchasing a Home in High Inflationary Times | Guest Post
TVs and automobiles cost more now than they did this time last year. Diapers, shampoo and conditioner? The same. Gas prices are soaring higher than ever before. Inflation rates are at levels we haven’t seen since Reagan was President and before many of the average homebuyers were born. Inflation is touching everything—including the housing market.
Home prices jumped 19% between January 2021 and January 2022, with the median price for active home listings sitting at $450,000 in June 2022. The inventory doesn’t match the demand so prices continue to rise. With the rising costs of everything, monthly available income for housing may be decreasing.
Inflation is hitting housing hard, how should buyers prepare?
The cost of putting a roof over your head is going up—there’s no denying it. Both rents and mortgage payments are going up because of the lack of housing inventory and the skyrocketing prices of homes. Navigating these high inflationary times can be difficult for buyers. Here are three pieces of advice for navigating this transitionary market:
- Keep perspective. Yes, interest rates are going up and yes, home prices are high, but appreciation will continue to rise because demand is going to continue. Real estate is the best hedge against inflation. When you have a home and equity, you have options.
- Research and utilize strategies available. Capitalize on strategies for today so that you can grow your options for tomorrow. Think beyond the traditional 30-year fixed mortgage. Explore an adjustable-rate-mortgage or 2-1 buydown—think outside the box and find something that makes sense for your circumstance.
- Don’t put your purchase on hold. Depending on a crystal ball to anticipate how long inflation will be this high or the recession will last is not smart business. There are no guarantees about what will happen in the next six hours or six months. Waiting only shaves your opportunity.
There are no shortcuts or easy answers to becoming a homeowner—with or without high inflation. Homeowners typically have a net worth that’s 40 times greater than renters. Buying a home, even if it’s smaller than you imagined, is a path to building wealth. The key is to research, think outside the box, and be willing to adapt. Real estate is a great investment, especially with the national average appreciation rate at over 14%.
Looking ahead to 2023: What can buyers expect?
Recession predictions are everywhere: A recession is coming in 2023, maybe earlier. The economy is slowing down and inflation is giving indicators that it is also starting to come down. We are not heading toward a housing bust, however. The economy is like any balance sheet, if we spend more than we earn—a recession follows.
The Federal Reserve is trying to ease buyer demand by raising prices and rates. The Fed says they’ll combat inflation and cool down the economy by raising interest rates several times in the coming months. Expect the rest of this year to be volatile, with sideways movement of interest rates.
Unemployment rates are likely to start rising in the fall, with a tipping point in the new year. The housing market can be somewhat seasonal, and more inventory will become available in the last quarter of the year. This inventory still will not meet current and future needs. This will keep pushing prices into the unaffordable state it’s in now. Renting or buying, prices are likely to remain untenable.
Don’t allow fear to convince you to abandon your plan
Headlines are dominated with fear tactics—Buckle up for a long recession, $65 oil on the horizon if a recession hits—the media thrives on fear bating. The best way to fight this is by keeping your long-term goals and strategies in mind. What are you trying to achieve? Why let the economy hold you back?
Is it cheaper to rent today? Maybe, but you know it’s not cheaper to rent long-term. Hold firm to your plans and invest smartly, not out of fear. Buy but maybe buy smaller, start with a condo instead of single-family home. Buying a home is a smart decision to build wealth today and tomorrow. Doing so with the right research and strategies in mind can help you weather the volatile economy we find ourselves in currently.
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