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Inflation and the housing market: What buyers and sellers should consider now

Bearded Male Sticking For Sale Sign On House Yard Post
AleksandarGeorgiev/Getty Images
Bearded Male Sticking For Sale Sign On House Yard Post
AleksandarGeorgiev/Getty Images
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The economy has shifted rapidly since the start of the year, as COVID precautions eased, the Federal Reserve raised interest rates and Russia’s invasion of Ukraine gave global markets jitters.

Even with mortgage rates rising rapidly, real estate remains competitive, partly 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. Inflation essentially is an increase in the prices consumers pay for goods and services.

A small amount of ongoing inflation is considered normal, but the rate of inflation has been rising recently, affecting everything from how much you pay at the pump to the listing prices of homes.

“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, previously told Bankrate.

Key housing market statistics

Compounding the inflationary pressure on housing, the limited number of homes available for sale is pushing prices up rapidly. That low inventory is due partly to pandemic-related construction delays and partly because many homeowners who would otherwise have moved chose to postpone putting their properties on the market during lockdowns. Recent data from RE/MAX shows that there are approximately 4 million to 6 million fewer homes available than needed to meet demand.

While competition is cooling a little bit this year, it remains tough out there for buyers. The National Association of Realtors estimates that properties only spent 17 days on the market on average in March 2022.

Many experts also agree that rising mortgage rates will do little to push prices down. Although prices may rise more slowly this year than they did last, they are still headed higher, with double-digit increases possible year-over-year.

Mortgage rates, though much higher now this year than last, remain historically low. On average, rates were historically closer to 8 percent compared to today’s roughly 5 percent.

The median sale price for an existing home in the U.S. was $375,300 in March, according to NAR. With 20 percent down and a 4.366 percent interest rate — Bankrate’s average on 30-year fixed mortgages in March — the monthly payment for a property at that price would be $1,497 before taxes, insurance or HOA fees, lower than the average rent in March of $1,904, according to Zillow.

Taken together, these conditions are favorable for sellers, who often receive many offers above asking price, but the market can be extremely frustrating for buyers, who can struggle to make the winning bid.

What to consider if you want to sell your home

If you’re looking to sell your home right now, you shouldn’t have too much trouble. The real issue could be what happens on the other side of the transaction. When you go to purchase your next place to live, you’ll be joining the scrum of eager buyers competing for a limited number of available properties — and now likely obtaining a new mortgage at a higher rate, to boot.

Pros

  • The pandemic has shifted priorities for a lot of homebuyers, and many newly-minted remote workers sought out more space. Although more people wanted to move, the number of listings did not keep up, which forced prices up — a great thing for sellers.
  • Buyers have had to offer more and more money to compete, and many even waived conditions like inspection and appraisal contingencies in their contracts.
  • 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.

Cons

  • Selling is easy, but finding another home is hard, especially for people looking to downsize, because they may find themselves in an even more competitive market segment.
  • Existing-home sale prices are up 15 percent since last year, according to NAR, 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.

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 get preapproved for a mortgage before setting out to look for homes, and make as big a down payment as possible, to show sellers you’re serious and your financials are sound.

Pros

  • Although home prices are high, many 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 was a little over a decade ago.

Cons

  • Mortgage rates are on the rise, so it’ll be more expensive to borrow. If you were planning to buy a home in the future, you might not be able to afford to stay on the sidelines for much longer.
  • 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: Many homes are still selling at 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.

Should you wait for inflation to decrease and inventory to increase?

There’s no perfect time to buy a house, so it really comes down to what you’re comfortable with. If the numbers work for you now, and you can secure a mortgage that has monthly payments you can afford going forward, then it’s a fine time to buy if you can make the best offer.

Otherwise, it could be worth it to wait until market conditions favor buyers a little more, or see if you can adjust the geographical area or physical parameters of your housing search.

No matter what you decide to do, it’s important to get your finances in order so you’re in as strong a position as possible when you do decide to enter the homebuying fray. If you wait, you can use the time to keep contributing to your savings. Your down payment fund may go farther in a cooler housing market, after all.

Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a former mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
Edited by
Mortgage editor