Higher prices are everywhere, including home prices.  According to October’s Consumer Price Index (CPI) the cost of shelter increased +0.5% in October.

Rising Inflation Spurring Higher Prices for Everything, Including Housing

Just like everything else, home prices increased +0.5% in October, according to the Consumer Price Index (CPI).

George Ratiu, manager of economic research with Realtor.com, said, “With inflation rising so aggressively and the fact that people’s salaries and weekly income are not rising at the same rate, we end up with less discretionary money to spend each month.”

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What Does Rising Inflation Mean for Home Buyers?

Ratiu thinks that home buyers may have to lower their home buying budgets.

Why?  Because rising inflation means that everyone will have less money to spend on everything since everyone is paying higher prices for everything.  Also, mortgage rates are climbing incrementally.  According to a Realtor.com analysis, buyers of median priced homes are right now spending +$160/month more on their monthly mortgage payments than they did one year ago.

And Ratiu believe those mortgage rates will continue to rise.  Ratiu said, “Generally as we see inflation go higher, we are going to see mortgage rates go higher…”

Remember, it’s the job of the Federal Reserve to adjust interest rates as a way to either jack up or cool down the economy. When the pandemic hit in April 2020, the Fed  lowered interest rates in hopes of jacking up the economy.  Now that the economy is improving and inflation is raging, the Fed is incrementally raising interest rates in hopes of cooling down the economy and reining in inflation.

Home Ownership Historically Seen as Hedge Against Inflation

Homeowners with fixed mortgages know what their monthly mortgage payment is for the present and into the future, regardless of inflation.

Renters do not have such certainty.  Most recently, single-family rent growth skyrocketed +10.2% nationally, according to CoreLogic.

Jeff Tucker, senior economist with Zillow, said, “Homes are expensive now…but for most people the comparison that is most important is how the cost of home ownership is going to compare to the cost or renting.”

Tucker believes that broader inflation could well impact rent prices even more than it already has.  Tucker said, “If wages are rising of if the cost of building materials and appliance and light bulbs and paint is rising, all of these to some extent will flow into the cost of maintaining and building rental homes.”

Is It Better To Own a Home or Rent Now?

Ratiu said, as any good economist would say, it all depends upon each potential buyer/renter’s personal situation.

If a potential buyer intends to stay in a home she is considering buying for at least three to five years, Ratiu said it makes sense for her to buy now…especially since mortgage rates are relatively low, though incrementally rising. If not intending to stay in the house for at least three to five years, she ought to consider renting.

Tucker added that now through mid -January, there are fewer competing buyers…a big factor in a housing market with stark inventory.  Tucker also pointed out that now through mid-January, potential buyers “…are likely to get some of the best bargains of the year.”

Thanks to CNBC, Realtor.com and Zillow.




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