Buying a Home in an Inflated Economy

While the Federal Reserve works hard to lower inflation, the latest data reveal that the inflation rate is still increasing. You're undoubtedly feeling the pinch on your wallet at the gas station or the grocery store right now, but that information may also leave you wondering: Should I still buy a house right now?

Greg McBride, Chief Financial Analyst at Bankrate, explains how inflation is affecting the housing market:

“Inflation will have a strong influence on where mortgage rates go in the months ahead. . . . Whenever inflation finally starts to ease, so will mortgage rates — but even then, home prices are still subject to demand and very tight supply.”

No one knows how long it will take to bring down inflation, so the future course of mortgage rates is uncertain. While that uncertainty isn't fun, here's why both inflation and mortgage rates are crucial for your homebuying strategy.

When you buy a house, the interest rate on your mortgage and the property's price are both important. The cost of your monthly mortgage payment is impacted by higher mortgage rates - and how much you can comfortably afford is one of the factors that affects it. While this is true, there's no denying that purchasing and financing a home this year costs more than it did last year. Here's why.

Homeownership Is Historically a Great Hedge Against Inflation

In an inflationary economy, costs go up across the board. Historically, homeownership has been a excellent hedge against rising costs because you can lock in your largest monthly payment (your mortgage) for the duration of your loan. This can help to keep your monthly costs more steady. Not to mention that as home prices rise, so will the value of your house. According to Mark Cussen, Financial Writer at Investopedia: 

“Real estate is one of the time-honored inflation hedges. It's a tangible asset, and those tend to hold their value when inflation reigns, unlike paper assets. More specifically, as prices rise, so do property values.”

Furthermore, no one is advocating for property values to fall. As Selma Hepp, Deputy Chief Economist at CoreLogic, says:

“The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.”

In a nutshell, because of rising prices or increased mortgage rates, you won't have to put your house search on hold. When it comes to why you want to buy a house, there are other factors to consider. Apart from defending yourself against the inflationary effects of your purchases, and increasing your wealth through regular price increases, there are a variety of reasons to acquire a home right now, including meeting changing demands and much more.

Bottom Line

Homeownership is one of the best decisions you can make in an inflationary economy. You get the benefit of the added security of owning your home at a time when experts are forecasting prices to continue to rise. Connect with The Perreault Group to learn more about the best way to buy a home during inflation.