Is it wise to buy your first home during a period of inflation?

If your grocery bill is higher than last year, inflation is to blame. Prices are rising across the board for everything from food to gas and even houses. In Oct. 2020, US consumer prices rose 6.2%, the most considerable inflation increase in the past 30 years. The most notable price increases were for food, fuel, and shelter. According to the Consumer Price Index (CPI), shelter costs are up 3.5% from last year and on the highest pace since September 2019.

Many people are concerned about inflation. Wages are not rising at the same rate, which means that the increasing cost of necessities like food, fuel and shelter will eat more of your monthly budget. If you are saving for a home or planning to buy, you might be concerned that now isn’t the best time. But, like most major decisions, there are pros and cons to buying a home during a period of inflation. Let’s go through some of them.

• Pro: Real estate is a sound investment during times of inflation. Mortgage rates aren’t typically as affected by short-term inflation, as they tend to rise slower. These rates reflect what the market is doing for the next ten years, not ten months. They may increase as inflation continues, but the rise will be much slower than other goods and service prices. Right now, mortgage rates remain low, generally under 5%.
• Con: Housing prices are affected by supply and demand, and right now demand is high but supply is low. Last year, we saw historic price increases in hot real estate markets as many people moved out of cities and to smaller towns. Fierce bidding wars, price increases, and people buying homes without inspections were common. First-time home buyers will need to be smart and take advantage of deals quickly to compete, especially before the summer real estate season begins.
• Pro: Owning your home may be cheaper than paying rent. Rent prices will rise with inflation, and that increase — when you are already paying more for everything else — will hurt your budget. Buying a home can help you save on housing expenses with fixed payments and you can build equity instead of facing volatile rent prices that will rise with inflation.
• Con: You may have to lower your budget for buying. Increased prices caused by inflation will affect your buying power. Higher housing prices — plus increased costs for utilities, goods and services — may limit how much you can spend. Shopping in a lower price range may impact the type of home you can buy or the locations you can afford.

The rising costs consumers face because of inflation are concerning, but that doesn’t mean you have to give up on your dreams of buying a home this year. However, it does mean that you should carefully check your budget and plan. Book an appointment with one of our loan specialists, and we can help you arrange financing that will best suit your budget and housing needs, even during periods of inflation.