**Title: Navigating Home Buying During Inflation: Essential Tips and Insights**
**Buying a House During Inflation: What You Need to Know**
During periods of high inflation, the prices of essentials like groceries, gas, and housing increase. However, the primary driver behind your decision to purchase a home should be whether the timing is right for you and your particular financial situation, rather than the overall state of the economy or inflation.
In this article, we’ll examine what happens to house prices during inflation, explore the pros and cons of buying a home when prices rise, and provide tips to help you make a successful purchase. While buying a home during high inflation may seem daunting, careful planning and consideration of your personal circumstances can still make it a smart long-term investment.
### What Happens to House Prices During Inflation?
The price of just about everything tends to increase when inflation is rising. Houses are no exception. Home prices have steadily risen in recent years. According to the Federal Reserve Bank of St. Louis, the median sales price of existing homes in the U.S. was $407,600 as of May 2024. In May 2023, the median sales price of existing homes was $396,500, so the price jumped by a little more than $11,000 year over year.
### What Happens to Mortgage Rates During Inflation?
Mortgage interest rates dont have to rise during periods of inflation, but they often do. Thats because of the steps the Federal Reserve typically takes to help slow inflation. These include, most notably, increasing its main benchmark interest rate the federal funds rate. Mortgage interest rates arent tied directly to the Feds benchmark rate, but mortgage rates typically rise when the Fed raises the benchmark rate.
**Interest Rate Example**
If you take out a 30-year, fixed-rate loan for $350,000 at an interest rate of 4.25%, your monthly mortgage payment not counting taxes or insurance would be $1,722. But, if you took out that same loan amount at an interest rate of 5.25%, your monthly payment (again, not counting insurance or taxes) would come out to $1,933. Thats a difference of $211 a month or $2,532 a year. You can see how that adds up over time.
That doesnt mean you should refrain from buying a home when inflation and interest rates are rising. You should buy a home when it makes the most sense for you. If life changes mean its time to sell or buy, dont let inflation or rising interest rates keep you from making the move to a new home.
### Pros and Cons of Buying a House During Inflation
It might surprise you that buying a home during inflation can come with both advantages and disadvantages.
**Pros of Buying During Inflation**
– **Lock in Lower Rates:** If you buy a home now, you might be able to lock in a lower mortgage rate than you would if you waited months or years to apply for a mortgage. To keep your rate the same, though, and avoid the potential for rising market rates to impact your mortgage rate over time, youll need to choose a fixed-rate mortgage option.
– **Buying Power:** During a time of significant inflation, your money might have more buying power than it does later on. Thats because your money will buy less if inflation continues to rise. If you act now, you might be able to afford more home with your dollars than you would if you wait and inflation becomes even steeper.
– **Rising Rents:** During inflationary times, monthly apartment rents tend to rise, too. So, depending on where you live, you might make a smaller mortgage payment than you would pay in monthly rent.
**Cons of Buying During Inflation**
– **Unpredictable Market:** No one can predict when inflation might ease and prices might fall. If you buy during a time of rising inflation, you might spend more than if you waited for the rate of inflation to slow, which sends mortgage interest rates and housing prices down.
– **Limited Inventory:** Youll also need to consider housing inventory. Since construction prices are higher during inflation, theres unlikely to be as many new builds. The result will be less inventory and a higher demand ratio, which drives house prices up.
### 6 Tips for Buying a House During Rising Inflation
You can use several strategies to reduce the stress of buying a home at a time of high inflation.
1. **Research Market Trends**
– During challenging markets which include housing markets during times of high inflation its important to study the sales prices that homes are fetching in the neighborhoods youre interested in. This will tell you where you can afford to move. To get a deeper view of specific housing markets, work with a real estate agent.
2. **Reassess Your Housing Budget**
– During times of inflation, its important to know exactly how much home you can afford. Create a household budget that lists your expenses and monthly income. This will tell you how much you can afford on a monthly mortgage payment. Its wise to take on a monthly mortgage payment that comes in under the maximum amount you can afford.
3. **Expand Your Location and Home Type**
– When housing prices are rising, you might need to expand the number of communities where youre willing to buy. Investigating these areas of lower housing prices might help you make the move to homeownership without breaking your budget. You might also entertain a wider variety of houses, such as fixer-uppers or alternatives like townhouses or condos.
4. **Increase Your Credit Score and Down Payment**
– You can boost your odds of qualifying for a lower mortgage interest rate by repairing your credit score. The higher your score, the more likely you are to qualify for a lower interest rate on your mortgage. You can also lower your mortgage interest rate by coming up with a larger down payment.
5. **Buy Sooner Rather Than Later**
– If you buy a home now, you can lock in an interest rate at todays prices. While rates might be higher now than they were several months ago, todays rates might also be lower than what theyll be in the future especially if inflation keeps rising.
6. **Consider Other Mortgage Types**
– You might also save money during inflationary times depending on the type of mortgage you choose. For example, an adjustable-rate mortgage (ARM) might be a better choice for the short term than a fixed-rate mortgage. With an ARM, youll get a lower-than-market-rate interest rate for a fixed period, often lasting 5 or 7 years.
### The Bottom Line: Buying a House During Inflation Isnt Always a Bad Idea
Buying a house during inflation can actually be the right move for some people. Deciding whether to make a purchase at any given time should depend, above all, on whether you believe its in your personal best interests. If youre ready to become a homeowner, you dont have to let rising inflation stop you. Many potential buyers find their perfect home during times of heightened inflation and you can, too.
If youve found the right home, get started with O1ne Mortgage Inc. to discuss your financing options. Visit [O1ne Mortgage Inc.](https://o1nemortgage.com) to request a mortgage quote, apply for a loan, or speak with a mortgage expert. You can also call us at 888-372-8820.
**Keywords:** buying a house during inflation, home prices inflation, mortgage rates inflation, pros and cons buying home inflation, tips buying house inflation, O1ne Mortgage Inc.
Mortgage Rates
1. Federal Funds Rate 2. Mortgage Rates 3. Home Buying Costs 4. Adjustable-Rate Mortgages 5. Mortgage Refinancing
