Inflation And The Housing Market What You Can Do As Prices Spike

Dated: September 30 2022

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Although inflation slowed some in August, the downshift isn’t giving the Federal Reserve pause when it comes to increasing interest rates. That means higher rates on many mortgage types, and for homebuyers overall, continued elevated home prices in the months to come.

To bring inflation back to Earth, the Federal Reserve has been steadily raising rates — four times so far this year, with the latest hike at the end of July and another on deck this month. Those actions have indirectly influenced mortgage rates, with the average 30-year fixed rate recently topping 6 percent. As of June, monthly mortgage payments were up 53.7 percent year-over-year, according to a National Association of Realtors index.

What’s happening in the housing market now

Nationally, home prices rose 15.3 percent year-over-year in July, CoreLogic reports. While that represents a slowdown, it’s high by historical standards, and inflation isn’t helping matters. In a persistent trend, both homebuyers and sellers feel less optimistic about their prospects, according to Fannie Mae’s latest index.

“With home prices expected to moderate over the forecast horizon and economic uncertainty heightened, both homebuyers and home sellers may be incentivized to remain on the sidelines — homebuyers anticipating home price declines and potential home sellers not keen to give up their lower, fixed mortgage rate — contributing to a further cooling in home sales through the end of the year,” said Doug Duncan, senior vice president and chief economist at Fannie Mae, in a statement.

Should you wait for inflation to come down?

With inflation still weighing on the economy and housing market, should you buy a home now? What about selling your home now?

If you can’t make the numbers work, it’s OK to wait things out instead of buying a home today to beat increased prices and rates, especially if you’re a first-time buyer. While you’d be putting off building equity, you might find you’re in a better position to buy in the future, when the market cools and your income potentially has had an opportunity to grow.

“Inflation coming back down doesn’t mean prices falling; it just means prices not rising as fast,” says Greg McBride, chief financial analyst for Bankrate. “For homebuyers, a more modest pace of appreciation or even a period of stagnant home prices can allow for incomes to grow further. Rather than stretching too much now, you may be able to buy a bit more comfortably in a couple of years if your income growth outpaces home price growth. But there are no guarantees, and rents have certainly spiked in the meantime.”

That said, the circumstances of your life might require you to buy a home now, and that’s as acceptable a reason as any. Because you’re buying at the peak or near-peak of the market, be prepared to stay in the home for a while if you want to come out ahead when you sell.

For sellers, the tides are turning. Depending on where you live, you could find fewer takers, or need to come down on price. Let’s not forget what happens on the other side of the transaction: When you go to purchase your next place to live, you’ll be competing for a limited number of available properties — and now likely obtaining a new mortgage at a higher rate, to boot.

If you’re set on buying now, you can try stretching your dollars by:

  • Putting your down payment savings in a high-yield account – One upside to inflation and the Fed’s response: higher interest rates on savings accounts. If you aren’t already, put your down payment contributions in a high-yield account. Just make sure the account allows you to access your money easily when it comes time for closing — some online savings accounts take three days to deliver your funds when you withdraw.

  • Considering a mortgage lender with low or no fees – While it might be more convenient to get a mortgage at your bank, banks typically charge an origination fee, often 1 percent of the amount you borrow. Many non-bank and online lenders don’t, so if you can find a no-fee lender with attractive rates, you’ll keep more money in your pocket.

  • Locking in your rate – When you find a lender and are ready to apply for a loan, ask about locking in your rate. Now’s not the time to take a chance on an unexpectedly unaffordable mortgage payment.

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Niki Pastell

Nicole was born and raised in Spotsylvania County. After graduating from Spotsylvania High School, she went on to become a cosmetologist and then started her career in property management in the Frede....

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