Should You Buy a Home with Inflation This High?

While the Federal Reserve is working hard to bring down inflation, the latest data shows the inflation rate is still going up. You no doubt are feeling the pinch on your wallet at the gas pump or the grocery store, but that news may also leave you wondering: should I still buy a home 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’ll take to bring down inflation, and that means the future trajectory of mortgage rates is also unclear. While that uncertainty isn’t comfortable, here’s why both inflation and mortgage rates are important for you and your homeownership plans.

When you buy a home, the mortgage rate and the price of the home matter. Higher mortgage rates impact how much you’ll pay for your monthly mortgage payment – and that directly affects how much you can comfortably afford. And while there’s no denying it’s more expensive to buy and finance a home this year than it was last year, it doesn’t mean you should pause your search. Here’s why.

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. Not to mention, as home prices continue to appreciate, your home’s value will too. That’s why Mark Cussen, Financial Writer at Investopedia, says: “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.”

Also, no one is calling for homes to lose value. 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, your home search doesn’t have to go on hold because of rising inflation or higher mortgage rates. There’s more to consider when it comes to why you want to buy a home. In addition to shielding yourself from the impact of inflation and growing your wealth through ongoing price appreciation, there are other reasons to buy a home right now like addressing your changing needs and so 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 in a time when experts are forecasting prices to continue to rise.

Two Reasons Why Today’s Housing Market Isn’t a Bubble

You may be reading headlines and hearing talk about a potential housing bubble or a crash, but it’s important to understand that the data and expert opinions tell a different story. A recent survey from Pulsenomics asked over one hundred housing market experts and real estate economists if they believe the housing market is in a bubble. The results indicate most experts don’t think that’s the case (see graph):

As the graph shows, a strong majority (60%) said the real estate market is not currently in a bubble. In the same survey, experts give the following reasons why this isn’t like 2008:

• The recent growth in home prices is because of demographics and low inventory

• Credit risks are low because underwriting and lending standards are sound

If you’re concerned a crash may be coming, here’s a deep dive into those two key factors that should help ease your concerns.

Low Housing Inventory Is Causing Home Prices To Rise

The supply of homes available for sale needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation.

As the graph below shows, there were too many homes for sale from 2007 to 2010 (many of which were short sales and foreclosures), and that caused prices to tumble. Today, there’s still a shortage of inventory, which is causing ongoing home price appreciation (see graph ):

Inventory is nothing like the last time. Prices are rising because there’s a healthy demand for homeownership at the same time there’s a limited supply of homes for sale. Odeta Kushi, Deputy Chief Economist at First American, explains, “The fundamentals driving house price growth in the U.S. remain intact. . . . The demand for homes continues to exceed the supply of homes for sale, which is keeping house price growth high.”

Mortgage Lending Standards Today Are Nothing Like the Last Time

During the housing bubble, it was much easier to get a mortgage than it is today. Here’s a graph showing the mortgage volume issued to purchasers with a credit score of less than 620 during the housing boom, and the subsequent volume in the years after:

This graph helps show one element of why mortgage standards are nothing like they were the last time. Purchasers who acquired a mortgage over the last decade are much more qualified than they were in the years leading up to the crash. Realtor.com notes: “. . . Lenders are giving mortgages only to the most qualified borrowers. These buyers are less likely to wind up in foreclosure.”

Bottom Line

A majority of experts agree we’re not in a housing bubble. That’s because home price growth is backed by strong housing market fundamentals and lending standards are much tighter today. If you have questions, let’s connect to discuss why today’s housing market is nothing like 2008.

Top Sales for July 2022 in Coastal Boca Raton

Our top three sales in the month of July were all located in Royal Palm Yacht and Country Club, which accounted for 10% of the available inventory there. The top sale was an original build-era (1971) waterfront home. None of the homes on the list this month were new construction, with the newest sale being ALINA #312 which last sold from the developer in May 2021. The average DOM (days on market) was only 40 days, which is about a month shorter than average in Boca Raton. July also saw a rarely available condo at Presidential Place trade for $5M, six months after the last sale closed in December of 2020, as well as two other oceanfront condos at Excelsior. Penthouse 11 at 200 East closed this month at $3,020,000, far above the average price for a luxury condo in Boca Raton of $2,279,563, but under the average price per sqft of $798, coming in at $727.01.

360 E Alexander Palm Road
5  beds |  5.5 baths | 7,800 sq. ft.
$10,500,000

169 W Coconut Palm Road
5  beds |  6.5 baths | 6,105 sq. ft.
$8,200,000

368 S Silver Palm Road
5  beds |  7 baths | 5,957 sq. ft.
$7,850,000

800 S Ocean Boulevard 203
4  beds |  4.5 baths | 4,747 sq. ft.
$5,000,000

400 S Ocean Boulevard R-17
3  beds |  4.5 baths | 3,687 sq. ft.
$4,500,000

299 NE 6th Street
5  beds |  5 baths | 4,898 sq. ft.
$4,000,000

400 S Ocean Boulevard 25
3  beds |  2.5 baths | 3,446 sq. ft.
$4,000,000

820 NE Boca Bay Colony Drive
5  beds |  4.5 baths | 3,795 sq. ft.
$3,850,000

200 E Palmetto Park Rd Ph-11
3  beds |  3.5 baths | 4,154 sq. ft.
$3,020,000

511 Golden Harbour Drive
3  beds |  3.5 baths | 2,798 sq. ft.
$2,950,000

200 SE Mizner Boulevard 312
3  beds |  3.5 baths | 2,757 sq. ft.
$2,850,000