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Should I Sell a Home During Inflation

The economy is weird right now and if you’ve read the business section of any website or newspaper lately, it seems like inflation is the topic that’s on the tip of everyone’s tongue. The pandemic has upended daily life for nearly everyone, the Federal Reserve is trying to stave off even more dire conditions by lending money for next to nothing, and the unemployment situation remains precarious.

Even so, real estate has remained an unusual bright spot, because homeowners and would-be buyers were generally less affected, monetarily speaking, by the pandemic than renters.

Although the housing market has remained strong, it’s not immune from outside economic forces, including inflation.

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What to consider if you want to sell your home

If you’re looking to sell your home right now, now is a great time. The only issue could be what happens on the other side of the transaction.

Cons

• Selling will be easy in comparison to finding another home. When you go to purchase your next place to live, you’ll be joining the group of eager buyers competing for a limited number of available homes.

• Home prices are up by more than 17 percent since last year, according to the National Association of Realtors, which means the proceeds from your sale won’t go as far when you move to make your next purchase.

• Low inventory, high prices, and high rents may make it hard to find your next home.

Pros

• The pandemic has shifted priorities for a lot of homebuyers, and remote work led many to seek out more space.

• Although more people wanted to move, the available inventory did not keep up, which forced prices up — a great thing for sellers.

• Buyers are very competitive, often offering more money than the list price and waiving contingencies that are normally part of the contract.

• Many housing experts think we’re near the top of the market in terms of prices, so it’s a great time to sell overall.

Should I Buy a Home During Inflation

What Is Inflation?

Inflation essentially is an increase in the prices consumers pay for goods and services. From the point of view of a single self-interested consumer, you never want to see inflation because it means the money that you already have in your possession is worth some amount less than it was when you originally earned it. But from a macro view, some inflation is good.

In a healthy economy, there should theoretically always be some inflation. If prices tend to go up over time, it encourages people to buy goods, services, and even houses now rather than waiting for some later date. This means there’s plenty of work for producers. This allows them to continue hiring people, who buy goods and services of their own.

The key is keeping a lid on inflation. You don’t want a can of soda that used to be $1.50 from the vending machine to suddenly cost a $5 bill. Another place we tend to usually see inflation show up first is the gas pump and this tends to generate headlines as well. The Federal Reserve has said its long-run goal is for inflation to be around 2% annually.

“By keeping interest rates this low for this long, what they’ve done is they’ve created an everything bubble. It’s not just the housing market,” Desmond Lachman, a senior fellow at the American Enterprise Institute.

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What to consider if you want to buy a home

Even in this crazy market, you can still snag a great home if you play your cards right and make sure the numbers work for you. It’s especially important to work with a full-time local Realtor. Full-time Realtors are constantly networking with other agents and often know of upcoming/off-market inventory that can only be found by word of mouth. When it comes to writing an offer, listing agents often put a strong amount of consideration into who is representing the buyers. (Hence our slogan; Who you work with Matters!)

Cons

• The intense seller’s market means buyers need to be prepared for bidding wars and to lose out on multiple properties before finally sealing a deal.

• You may need to reevaluate your budget or must-have list: Most homes sell over-asking these days, so your dollars may not go as far as you hoped.

• You could see your property value decline after you close once the market cools off, but experts say a trend toward foreclosure is not on the horizon, and if you’re buying your forever home, the value should eventually recover.

Pros

• Mortgage rates have never been lower. You may have to pay more for your house than you’d like to, but your borrowing costs will be lower, so you may be able to afford that bigger loan without having to stretch too much.

• Although home prices are high, most experts say this current housing cycle should not be a repeat of 2008, when the bursting bubble triggered the Great Recession. If you buy now, you may see some short-term losses if you try to sell the property again too soon, but there shouldn’t be a huge wave of foreclosures like there were a decade ago.

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Why I would buy a home during inflation

Although it might make sense that rising interest rates may bring home prices down, it will also greatly affect the purchasing power of homeowners that plan to use a mortgage. During inflation, the money you had yesterday is worth a little less today. If you can lock down a 30-year loan with a low interest rate and a monthly payment that you are comfortable with, then it is a great time to buy.

The first step would be contacting a lender to see what your options are. Feel free to reach out to us for a referral, we have a couple of amazing lenders that can help you!

Take a look at the step by step guide to purchasing a home.

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Factors That Influence Affordability

Lately, you can’t discuss residential real estate without commenting on the affordability challenges that today’s consumers face. There’s no question that properties in El Dorado Hills and other areas are much less affordable today than they were over the past few years, but that doesn’t imply homes are now truly unaffordable. There are 3 factors used to establish home affordability which includes home prices, loan rates, and wages. Here is a closer look at those components.

Home Prices

The latest Home Price Insights report provided by CoreLogic shows that home values have increased by 22% from last March of 2021 to our current month (March 2022). This is one reason affordability has declined over the past year.

Mortgage Rates

While the current global uncertainty makes it difficult to project home loan rates, we do know current rates are almost one full percentage point higher than they were at this time last year. According to Freddie Mac, the average rate for last February was 2.81% whereas this February it was 3.76%. That increase in the mortgage rate also contributes to homes being less affordable than they were last year.

Wages

The one big and positive component within the affordability equation is a rise in American wages. In a recent article by RealtyTrac, Peter Miller addresses that point:

“Prices are up, but what about wages? ADP reports that jobholder incomes increased 5.9% last year but rose 8.0% for those who switched employers. In effect, some of the higher cost to buy a home has been offset by more cash income.”

The National Association of Realtors (NAR) also recently released some data that examines income and affordability. The NAR report provides a comparison of the current median family income versus the qualifying income for a median-priced home in each region of the country. While the figures might range in certain locations within each region, it’s important to note that it was found that in most of the country, homes are still affordable.

In the end, when you think about affordability you must remember that the picture includes more than just home prices and mortgage rates. While they do have a significant impact, wages need to be factored into affordability as well. Because wages have been rising, they’re a big reason that, while less affordable a few years ago, homes are not unaffordable today.

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