How to Think About Homeownership in an Inflationary Economy

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: how do I even think about homeownership in an inflationary economy?

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.

How Inflation Impacts Mortgage Rates

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 will 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.

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.

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.”

No one is calling for homes to lose value.

No Need to Pause the Home Buying Process

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.

Some reasons are purely financial. For example, owning a home shields you from the impact of inflation and helps to grow wealth. Others are more personal, like adapting to a changing family or upgrading to a home that better suits your needs.

When thinking about homeownership in an inflationary economy, think of it as added security. Especially, as prices to continue to rise. Come talk with the Ultimate Lending Team to learn more information and what you might be able to do.

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