What Homebuyers Need to Know as Inflation Continues Rising

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Rising inflation results in higher prices around every corner, especially in the housing market inferno. If you are currently looking to buy a new home, Financial Advisors in Bountiful, UT, are here to inform you of what you should be aware of to plan and purchase wisely. 

Even though houses are priced above average, the number of homebuyers is predicted to increase throughout the year. Will you be one of them?


Rising inflation: Is there a silver lining? Let’s discuss how inflation could impact your ability to buy a house.


As inflation trends upward, people are realizing the economic benefits of homeownership. As a quick comparison, the average 30-year fixed mortgage rate was 3.11% in December 2021. According to Bankrate.com, an average 30-year fixed mortgage rate was 5.10%, with an APR of 5.11% in April 2022. 

Keep reading to understand how these trends can impact you and nine things you need to know right now as a potential homebuyer.

Real Estate Market During High Inflation

There’s a link between inflation and real estate since inflation often leads to wage increases and higher rates, spurring housing demand and pushing prices upward. However, wages do not seem to be keeping up with the aggressive inflation rate. 

The manager of economic research at Realtor.com, George Ratiu, says people’s salaries and weekly income are not increasing at the same rate as inflation. Therefore, they end up with less discretionary money to spend each month. Other aspects that pressure price growth are remote work preferences, favorable demographics, and rising household incomes.

Just when you think high mortgage rates would help to calm the heated housing market, Bank of America shares that home prices are predicted to finish around 10% higher in 2022. Keep in mind that the average annual home price growth has been 4.6% since 1989; this growth rate is almost double.

Note: the Case-Shiller U.S. National Home Price Index (leading measurement of U.S. home prices) jumped 18.8% between December 2020 and December 2021.

To better understand rising inflation, read: Why is Inflation Rising and How Did We Get Here?

In short, the overall real estate market is not slowing, even with the rising mortgage interest rates. Perhaps the masses better understand how owning versus renting can help them save in the short and long term.

Silver Lining: Property Owners Benefit

Real estate has served as a hedge against inflation for decades. Even though homes are expensive right now, most people are comparing the cost of homeownership to the cost of renting. Bottom line, no matter what the market you’re in, you can likely find a deal on a home that fits your financial plan when created with an experienced team.

There is a unique advantage during high inflationary times for homeowners, like holding a fixed-rate mortgage. With the knowledge that interest rates will hike throughout the year, many people are in a hurry to lock in a lower rate. 

Why is Inflation Rising? Now Compared to 40 Years Ago

What Homebuyers Need to know During High Inflationary Periods

Since the current inflationary window feels unique (influenced by a multitude of ongoing factors), let’s compare the median home prices in America from last year to this year. In early 2021 it was $305,000 versus $392,000 in early 2022. What does this tell you? 

Keep in mind that homebuyers may have some relief as we move into next year, as home prices are expected to increase just 5% in 2023. This could result in fewer bidding wars, as this home growth rate would normalize appreciation. 

However, even the most seasoned real estate firms have had a hard time predicting the housing market. CoreLogic and Zillow thought home prices would decrease a year after the pandemic hit. Instead, prices are doing just the opposite. 

Here are nine things we think homebuyers should know right now:

  1. A cooling price-growth rate is good for you as a homebuyer.
  2. Rising interest rates are not so good for you.
  3. Don’t rely on the average house price trend in 2022 or predictions to determine if you buy.
  4. Stay aware of home prices in your specific area (home prices could grow slower if inventory increases and/or if buyer demand decreases).
  5. Focus on how a mortgage could play a role in your budget, savings, and investments.
  6. 25% or less of your monthly take-home pay should cover your new home mortgage payment (including insurance, taxes, and homeowners association fees). 
  7. The most affordable and quickest type of mortgage to pay off is a 15-year fixed-rate mortgage. If you can put at least 20% down you don’t have to pay private mortgage insurance—extra savings.
  8. Work with an experienced, trustworthy financial advisor in Utah who can help you find the right real estate agents and/or mortgage lenders. 
  9. Proactive tax planning should be considered in all financial planning, especially within real estate investments.

If you are in the market to buy a new home in Utah, ask our team of financial advisors about what kind of loan could be most suitable for you and your family.

Silver Lining: Value of Debt Decreases (Mortgage)

As you may be aware, mortgage rates reached historic lows throughout the Coronavirus pandemic. Many homeowners even refinanced their debt at a rate below 3%. For example, if you have a $300,000 mortgage you refinanced last July at 2.9%, the cost of financing your debt stays steady at a lower rate as inflation goes up.

 Since the new cost of your mortgage won’t change, your salary and the value of your home may increase in response to inflation. This can allow you to save more for retirement and invest that money elsewhere. If your real borrowing rate is negative, your mortgage is pretty much free money—the proof is in the numbers when inflation weighs in at 7.9%, and you now pay 2.9% on your mortgage.

Consider your equity which has increased with the value of your home. As most real estate investors agree, a 15-year or even 30-year fixed-rate mortgage is most advantageous during high inflationary times.

Read: What to Invest In During Inflation: 6 Strategies for Investors

Don’t let Sticker Shock Get Your Hopes Up.

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