The April 2023 Consumer Price Index (CPI) rose 0.4 percent, compared to a 0.1 percent increase in March. According to the latest figures from the U.S. Bureau of Labor Statistics, released May 10, the all-items index increased 4.9 percent over the past year before seasonal adjustment, which is nearly flat from March’s 5.0 percent rise.

Overall, inflation has now slowed for 10 straight months and is down significantly from its peak of around 9 percent last summer. Despite the progress, though, it remains above the Federal Open Market Committee’s stated goal of 2 percent. Here’s a peek into how inflation affects the housing market.

Inflation and the housing market now

The shelter category, which includes housing costs, rose 0.4 percent in April and continues to be one of the largest components of the CPI’s monthly all-items increase. The shelter index increased 8.1 percent over the last year.

Inflation pressures continue to ease but remain unacceptably high in the eyes of consumers and central bankers alike. — Mark Hamrick, Bankrate Senior Economic Analyst

According to Bankrate’s most recent data, the current average 30-year fixed mortgage rate is 6.52 percent. “The interest-rate-sensitive housing market was among the first sectors to feel the impacts of the Fed, which continues to maintain a hawkish ‘rates higher for longer’ stance,” Hamrick says. “Affordability and supply are weighing on the market. The surge in home prices has been accompanied by the sharp increase in mortgage rates, which have eased only slightly from last year’s peak.”

Nationally, CoreLogic reports that home prices rose 3.1 percent year-over-year in March, the lowest rate of appreciation since 2012. And Fannie Mae’s latest Home Purchase Sentiment Index (HPSI) increased 5.5 points in April to its highest level since May 2022.

Optimism cautiously growing

The HPSI now stands at 66.8, with just 23 percent of respondents saying they believe it’s a good time to buy a home. However, the outlook is trending in a positive direction.

“This month’s increase in the HPSI was the largest in over two years, primarily driven by consumers’ more optimistic mortgage rate expectations,” said Doug Duncan, Fannie Mae senior vice president and chief economist, in a statement. “An increased number of respondents indicated they think mortgage rates will go down over the next year, a belief that could be due to a combination of factors, including an awareness of decelerating inflation.”

I think we could be surprised at how much mortgage rates pull back this year. — Greg McBride, CFA, Bankrate chief financial analyst

The sunny outlook should be taken cautiously, though: “The bump in optimism may prove to be temporary, as consumers continue to report uncertainty about the direction of home prices,” Duncan continued. “Until affordability improves for a larger swath of the homebuying public, we believe home sales will remain subdued compared to previous years.”

Should you wait for inflation to come down more?

Among these decidedly mixed signals, should you buy a home now, or wait? What about selling your home now?

For homebuyers

Low inventory remains a problem for potential buyers across the country. According to the National Association of Realtors’ most recent existing home sales data, the country had a 2.6-month supply of housing inventory in March, the same as it was in February. That’s half of the 5 to 6 months that would be needed for a balanced market.

It’s OK to wait things out instead of buying now to beat further increases, especially if you’re a first-time homebuyer. While you’d be putting off building equity, you might find you’re in a better position to buy in the future, as the market continues to cool and your income can potentially grow. “Even when inflation does come down on a consistent basis, it doesn’t mean prices falling; it just means prices not rising as fast,” says McBride. “For homebuyers, a more modest pace of appreciation or even a period of stagnant home prices can allow for incomes to grow further. Rather than stretching too much now, you may be able to buy a bit more comfortably in a couple of years if your income growth outpaces home price growth. But there are no guarantees.”

That said, life circumstances might require you to buy a home now, regardless of market trends, and that’s as good a reason as any. Just make sure you plan to stay in the home for long enough to come out ahead when you eventually sell.

For home sellers

The ongoing housing shortage may provide an opportunity for sellers to get a better price for their homes. This is good news, but keep in mind that if you then need to buy a new home, the tables will turn, and you’ll be subject to the same circumstances — and high mortgage rates — as other buyers.

And remember, location matters. Prices vary greatly from one area to the next, so depending on where you live, you could find fewer takers or need to come down on price. According to Knock’s recent Buyer-Seller Market Index, buyers will gain the advantage in the West and Southwest in 2023, while the East will continue to favor sellers.

Homebuying tips when prices are high

If you’re set on buying soon, here are a few ways you can stretch your housing budget:

  • Put your down payment savings in a high-yield account: One upside to inflation and the Fed’s many price hikes: higher interest rates on savings accounts. If you aren’t already, put your down payment contributions into a high-yield account. Just make sure the account allows you to access your money easily when it comes time for closing — some online savings accounts take three days to deliver your funds when you withdraw.
  • Consider a mortgage lender with low or no fees: While it might be more convenient to get a mortgage at your bank, banks typically charge an origination fee, often 1 percent of the amount you borrow. Many non-bank and online lenders don’t, so if you can find a no-fee lender with attractive rates, you’ll keep more money in your pocket.
  • Lock in your mortgage rate: When you find a lender and are applying for a loan, ask about locking in your rate. Now’s not the time to take a chance on your monthly mortgage payment suddenly soaring in price, right before you’re set to close.