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Home Prices During Inflation: Buy Now or Wait?

Home prices during inflation can turn anyone into a skeptic when it comes to buying real estate. Especially after last year’s housing market craze, when the seller’s market caused home prices to skyrocket, you’re probably wondering, “Now that there’s talk about inflation, is buying a house the smart thing to do?”

Even if you’ve had rising hopes about recent proposals that are aimed at providing major down payment assistance, you’re probably discouraged by recent gloomy economic forecasts. The good news is we’ve created this post to help you understand the basics about inflation, and whether you should buy or wait to become a homeowner.

What is inflation?

Inflation is a rate at which the value of a currency declines. In other words, inflation means your money becomes worth less than it used to be, or in even simpler terms, your money doesn’t buy as much as it used to buy.

Inflation can be caused in a few different ways:

  • Demand-pull — This type of inflation happens when there’s a sudden increase in the supply of money in an economy, which rapidly increases the demand for goods and services beyond what that economy can produce. Higher demand pulls prices up.
  • Cost-push — This type of inflation happens when the costs of goods and services increase. Rising costs push prices up.
  • Built-in — This type of inflation is the result of people’s expectations that inflation will continue into the future. Because people expect prices to continue rising, they will increase the prices of their own goods or services, and workers will demand higher wages. Increasing wages result in higher prices, and vice versa.

The recent increase in inflation can be attributed to supply chain disruptions and increased consumer demand as the US economy begins reopening following the Covid-19 pandemic. Coupled with already inflated home prices, you’re probably convinced that now is the exact time not to buy real estate.

Keep reading to find out why homeownership is the perfect defense against inflation.

Home prices during inflation: Why you should buy

Home prices during inflation are one of the best ways to save money.

As the costs of goods and services rise, you’re going to spend more money on groceries, energy bills, car repairs, etc. When you break down the numbers, you’ll find that you spend the most money on monthly housing costs. It only makes sense that you shield your housing expenses by locking in a fixed-rate mortgage. Speaking of interest, mortgage rates are at record lows, meaning you’re able to get more houses for your money.

If you’re contemplating whether to continue renting or to purchase a home, consider these scenarios:

  • Imagine you’re renting an apartment for $1,350 per month. Inflation is increasing costs, including the expenses your landlord must pay to serve and maintain your community. They’re going to pass this increase on to you by increasing your monthly rent payments. What happens if in a year from now, you’re suddenly paying $1,800 instead of $1,350, on top of the inflated costs of everything else you’re used to spending on?
  • Imagine you’re a long-term renter of a home. With increased home prices and inflation, your landlord decides that they would rather make a profit to shield themselves from rising costs. What are you going to do if they decide to sell the home?
  • Imagine you’re a new homeowner, and you just moved in knowing that your $1,400 per month payment won’t go up. On top of that, you’re gaining equity in your home and the value is steadily increasing. You don’t have to worry about sudden spikes in housing costs or whether you’ll have to find a new home a few months from now.

Buying a home during inflation is one of the best things you can do to stabilize your biggest monthly expense.

Interest rates: Another reason not to wait

If you’re still not convinced that now’s the right time to buy, consider mortgage interest rates. Although rates are at record lows, that may not be the case later this year or even a few months from now. Many market experts are confident that the sub 2.70% rates seen in January 2021 won’t be coming back anytime soon. They predict that due to the Federal Reserve’s recent policy changes aimed at combating inflation, mortgage rates will continue to rise throughout the year — possibly into the 4% range. And that change is likely going to happen in March when the Fed will taper down its purchasing of mortgage-backed securities.

So if you’re waiting to buy because you’re hoping rates will come down again, don’t hold your breath. Though they’re not going to hit 2.70% again, the silver lining is that rates are still historically low. Even if you lock in at 3.75% or 4.00%, you’ll end up saving hundreds per month and thousands over the life of your loan compared to the 5% or 6% you’ll likely see in the future. Also, remember that locking in a lower rate means you’ll be able to buy more houses for your money since you’ll have less to pay in interest.

Lock in your defense against inflation

Imagine the peace of mind knowing that inflation won’t boost your monthly housing costs. See what rates are available and lock in your future as a homeowner when you get pre-approved with MBA Mortgage.

Not quite ready to buy?

For all things, mortgage and homeownership, check out A Millennial’s Guide to Homeownership.

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