Stories about inflation have, again, dominated news headlines. Conversations circling around mortgage rates, gas prices, and supply of consumer goods have all become the norm. In early June the FED hiked interest rates by 75 basis points in trajectory of a correction. Both an economically complicated and nuanced situation, what does inflation mean for the housing market as a whole?

Inflation is the lessening of a consumer's purchasing power due to rising prices and the reduced value of the dollar. Due to fluctuations in the global economy and political environment, business owners are seeing rising supply chain costs and we, as consumers, are then now experiencing those rising prices. Although this may seem inherently negative, there are positives to inflation - in fact, a healthy economy will always have a little inflation present.

Rising inflation can be seen affecting a few different areas of the housing market. Rising rent prices, higher mortgage rates, and higher home prices are fairly common in high inflationary periods. For example, recently, rent has been seen skyrocketing and lessening the purchasing power of tenants significantly. With this being the case, it may provide an extra incentive for current renters to invest into their next home as a solution for renting.

Rising mortgage rates and home prices are also common with higher inflation. That said, currently mortgage rates are at just above 5%, which is still on the lower end of historical rates (the highest being in the 1980's around 18%). Central bank lifted its key lending rate range to 2.25% to 2.5% - a benchmark policy makers consider neutral which neither stimulates nor restricts growth. Although, be wary, rates are projected to grow in the coming years. The FED must rein in consumer-price increases of 9.1% without tipping the U.S. into a recession. 

Many experts also say real estate can act as a hedge or a boundary from the negative effects of inflation. Chief economist at Zonda, Ali Wolf, speaks to the fact that housing is typically something that can appreciate in value and can be a solid foundational place to put your money in a time you do not want it to lose value. James Royal, a senior wealth management reporter also notes that with a fixed mortgage you can count on paying the same amount each month, which can allow you greater purchasing power. With that as well. Natalie Campisi, an advisor at Forbes, states that you also are protected from high rental prices, that can be expected to continue to rise with inflation.

 

Is it the time to invest in a home? What's the most financially efficient mortgage?

Although rising inflation can be scary, each market looks different under this wide scope. Currently, the housing market for buyers and sellers is a still a viable and smart option to invest in. It can be helpful to continue to keep up to date with news and federal reserve projections along with other major mortgage companies such as Freddie Mac and Fannie Mae. If you feel ready to begin your home buying experience in this market, we suggest getting pre-approved and reach out to a real estate advisor.

 

Sources: Freddie Mac, Realty Biz News, Wall Street Journal, Forbes, Investopedia, NPR, Mynd Management, Fox, Mint Intuit, Rocket Mortgage, Bob VIla, Keeping Current Matters, The Economy Forecast Agency, Bankrate: Forbes