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How inflation impacts home prices

How inflation affects Home Prices

When Inflation and interest rates rise, it wreaks havoc in the market

When inflation rises, the cost of everything rises.  Because of increasing costs of lumber it’s only natural that home price go up in correlation to inflation.  As such, it discourages new home building.  Therefore, the market turns to existing inventory.  As a result, this benefits sellers, adding even more fuel to the seller’s market we’ve been experiencing

Inflation, in turn, also impacts the mortgage market. The Federal Reserve typically tightens monetary policy to help fight inflation. As a result, we have seen interest rates spike in the past weeks. This makes buying a home even more challenging. In order to keep the same payment that was once wanted, buyers now have to lower their expectations with a lower priced home. So what’s one to do you might ask?  Well there are some tips and tricks that you follow during these times to soften the blow.

Buy a House ......... ASAP

With more Fed rate hikes and higher prices on the horizOn, experTs say time is of the essence for buyers —at least if they want to avoid further hitsVto affordability.

“Rising inflation means that cash nw holds more value than it will in the future, assuming inflation continues to rise,” says Rob Heck, vice president of mortgage at Morty, a mortgage loan marketplace. “It could be cheaper to buy right now than in the future, especially if home prices continue their upward climb.”

Put simply: If you buy now, you lock in a price and mortgage payment in today’s dollars — not the less valuable dollars of the future.

Buying soon can also help consumers avoid skyrocketing rent prices, which are rising faster than home prices in many places. According to, the median asking rent last month was up 17% compared to March 2021.

“If you buy now, you’ll have the chance to benefit from the inflation of home prices,” says Maggie Gomez, a certified financial planner and founder of Money with Maggie, which provides financial and investment advisory services. “Rent prices are increasing right alongside home prices, so you may not be saving much by waiting to buy if you end up spending a lot of time paying someone else’s mortgage at inflated costs.”


Lindsey Bell, chief markets and money strategist at Ally, recommends determining your absolute cap — the maximum you can spend on your monthly mortgage payment — and working backward from there.

“Buyers should take a hard look at their overall budget and determine what their final home price is,” Bell says. “Basically, they need to understand when it’s time to walk away.”

If you plan to spend more than before, you’ll also want to factor in bigger down payment (20% of a $400,000 house is a lot more than 20% of a $350,000 one), higher costs of living and the rising prices of ancillary goods and services — like those associated with your move and home maintenance and repairs.

As Dennis Duban, a CPA and founder of DLD Accountancy, explains, “Movers, remodeling costs, utilities, property taxes and insurance will all increase, so buyers should be aware of these costs as well when doing a budget.”

Expand your Home search

Once you adjust your budget, you may also want to reassess your house-hunting strategy. That might mean looking at smaller properties or townhomes, searching in more rural, less in-demand areas or just shopping in lower price ranges.

If you opt for the latter choice, proceed with caution — particularly if you’re eyeing a fixer-upper. As with everything, the price of building materials and labor are rising, so repairing or renovating a property will cost you more than before, too.

“The materials needed to renovate a home will likely be more expensive and take longer to arrive than expected,” says Steven Gottlieb, a real estate agent with Coldwell Banker Warburg in New York. “Buyers need to plan accordingly, even if taking on a minor facelift in the new home.”


In a higher-cost environment, qualifying for the lowest interest rates possible will help keep monthly costs to a minimum. To do this, though, you’ll need a high credit score — usually a 740 or higher, depending on your lender.

“Keeping your credit score as high as possible will get you the best mortgage rate, and that will keep your payment down,” Duban says.

To raise your score, you can pay down your debts, avoid late payments and fix any errors on your credit report. Reducing your credit card balances or asking for a higher credit limit can also help. You may want to bring a bigger down payment to the table, too. This lessens the risk for the lender, and they may reward you with a lower interest rate. It also protects you in case home prices decline over time. “A higher down payment acts as a better hedge against declines in real estate values,” Bell says. “The more put down, the lower the chances that a slight dip in the market will put buyers in a position where they owe more than what their future home is worth.”

A low credit score can negatively impact your mortgage application and interest rate. The good news is that credit repair companies, such as Credit Saint, may be able to help you increase your credit score in within a few months!


Finally, if you’re looking to reduce costs in the face of inflation, it’s important to choose your mortgage loan carefully. As Heck explains, “There are a lot of different options available that could work well for you as a buyer and putting 20% down and getting a 30-year mortgage is not always the best fit.”

An adjustable-rate mortgage (ARM) may be a better option for some buyers. These have lower rates for the first few years of the loan term —typically three, five, or seven years — and the rate can adjust after that. These may be smart for buyers who know they won’t stay in the home long.

“An ARM allows a buyer to lock in at a lower than average mortgage rate for a set term,” says Kimberly Jay, a real estate agent with Compass in New York. “This can save a buyer money if they don’t plan on living in the home for a long period of time.”

There are also loans that come with low down payment requirements and no mortgage insurance costs, which may also soften the blow of inflation for qualifying buyers. Before you begin your home search, talk to a loan officer or mortgage broker about what loan programs you may be eligible for, and be sure to shop around. Rates and terms can vary significantly from one mortgage company to the next.

Bubble trouble ahead?

Fast-rising home prices? ✅ Out-of-control bidding wars? ✅ Investors flooding the market? ✅

Over the past two years, the nation has watched worriedly as home prices seemed to hit a new record high every month. Many buyers have been offering six figures over asking prices to snag properties. It’s been uncomfortably reminiscent of the runup to the housing bust that blew up the world’s economy roughly 15 years ago.

As the market has progressively heated to a boiling point, most real estate experts swore up and down that the housing market wasn’t in a bubble. Mortgage interest rates were so low, in the unprecedented mid-2% range, that buyers could afford the inflated prices, they said. Lenders were no longer making bad mortgages that could trigger another foreclosure crisis. And this time around, a housing shortage that has reached crisis proportions has resulted in many more buyers than properties for sale—just the opposite of the 2007–08 pre-crash conditions. This market could support the frenzy, they explained.

But that might not be so true anymore with mortgage rates soaring to their highest point in more than a decade, hitting 5% last week as they continue their upward march. Many of those same experts are now warning the housing market might be approaching a bubble—if it isn’t in one already.

There’s only so much that homebuyers can afford before they’re priced out of the market. In March, when rates surpassed the 4% mark, the number of buyers applying for mortgages fell 5%, according to the Mortgage Bankers Association.

Nationally, buyers are paying about 42% more in their monthly mortgage payments for the same house today than they did a year ago. The potent combo of rising home prices, up 14% year over year in March, and escalating mortgage rates, which rose nearly 2 percentage points, has added hundreds, if not thousands, of dollars a month to those mortgage bills

And that’s on top of what potential buyers are spending on everything else. Rents are up about 17% year over year, inflation is running at 8.5%, and gas prices rose about 40%. Many folks are simply tapped out.

How can the system handle skyrocketing home prices, mortgage rates, and rental prices simultaneously? Some believe it can’t.

Buyers expecting some pricing relief will likely be disappointed. Even if prices do fall, homebuyers will still be saddled with higher monthly mortgage payments. Rates have risen so much, so quickly, that they will likely more than make up for lower prices, costing homebuyers even more money.

And more desirable communities with plenty of high-paying tech and manufacturing jobs could see prices still continue to rise.

“You’re now starting to see people stretch their budgets,” says Ali Wolf, chief economist of building consultancy Zonda. “The market looks more frothy than it did just six months ago.”

Prices are likely to continue growing—for now