There’s good news on the inflation front: December 2022 marked the sixth straight month that the U.S. rate of inflation has decreased.

According to the latest figures from the U.S. Bureau of Labor Statistics, released January 12, the Consumer Price Index (CPI) fell 0.1 percent in December 2022. It had risen by the same amount in November. The inflation rate rose 6.5 percent between Dec. 2021 and Dec. 2022, versus 7.1 percent between Nov. 2021 and Nov. 2022. And while 6.5 percent inflation might still feel uncomfortably high to consumers, it is certainly cooling.

What will the Federal Reserve do with this latest information? We’ll find out January 31, when the Federal Open Market Committee (FOMC) meets for the first time in 2023. In the meantime, here’s a peek into how inflation affects the housing market.

Inflation and the housing market now

The CPI’s 0.1 percent monthly decrease was led by a 4.5 percent decrease in the energy index, including a 9.4 percent decrease in gasoline and 16.6 percent decrease in fuel oil. However, shelter — which represents housing-related costs — was up 0.8 percent in December.

According to Bankrate’s data, the current 30-year fixed mortgage rate is 6.46 percent, down from last month’s rate of 6.64 percent. In contrast, both the CPI rent index and owners’ equivalent rent index rose 0.8 percent between November and December of 2022.

Nationally, home prices rose 8.6 percent year-over-year in November, CoreLogic reports. October’s yearly increase was 10.1 percent, and September’s was 11.4 percent. Clearly, this represents a slowdown — although it’s still high by historical standards.

Fannie Mae’s Home Purchase Sentiment Index (HPSI) increased 3.7 points in December to 61.0, but the index remains only slightly above its all-time low set in October. Just 21 percent of respondents believe it’s a good time to buy, mostly due to the combination of still-high mortgage rates and home prices.

Consumers still pessimistic

“In December, the HPSI inched upward slightly, as consumers reported increased expectations that mortgage rates and home prices may decrease over the next year,” said Doug Duncan, Fannie Mae’s senior vice president and chief economist, in a statement.

“However, the HPSI remains very low by historical standards, and respondents continue to cite high home prices and unfavorable mortgage rates as the primary reasons for their pessimism. As we enter 2023, we expect affordability to remain the top challenge for potential homebuyers. At the same time, existing homeowners may continue to wait to list their properties, since many have already locked in lower mortgage rates, creating minimal incentive to sell and buy again until rates are more favorable. We think the resulting tension will contribute to a continued decline in home sales in the coming months.”

Should you wait for inflation to come down more?

With inflation still weighing on the housing market, should you buy a home now or wait? What about selling your home now?

For homebuyers

If you can’t make the numbers work, it’s OK to wait things out instead of buying a home today to beat increased prices and rates, especially if you’re a first-time buyer. 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 Greg McBride, CFA, chief financial analyst for Bankrate. “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, and rents have certainly spiked in the meantime.”

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. But, when you’re buying near the peak of the market, be prepared to stay in the home for a while if you want to come out ahead when you sell.

For home sellers

For sellers, the tides are turning. Depending on where you live, you could find fewer takers, or need to come down on price. Don’t forget what happens on the other side of the transaction: When you go to purchase your next place to live, you’ll be another buyer competing for a limited number of available properties — and now likely requiring a new mortgage at a higher rate, to boot.

Homebuying tips when prices are high

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

  • Put your down-payment savings in a high-yield account: One upside to inflation and the Fed’s response: higher interest rates on savings accounts. If you aren’t already, put your down payment contributions in 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.