If 40-year high inflation and rising mortgage rates have got you questioning your decision to buy a home in 2022, then keep reading…

Over the past couple of weeks, we’ve received a number of calls from prospective home buyers that are starting to feel uneasy, are nervous, and wondering if the best thing to do right now is nothing at all.

In this blog post, I want to help make sense of it all for you. Not to try and convince you of anything, but to provide the information and perspective you need to make the best decision for you and your family.

Watch the following video, or continue reading below, to learn more;

The real estate market has been on a tear for close to 2 years now. During that time home prices have risen dramatically, not only here in Frisco and Prosper, but across the country. Affordability has largely been kept in check thanks to record low mortgage rates. Now, not only are mortgage rates rising, but so is the price of just about everything else. The result is people are getting nervous and there is uncertainty which can make people start feeling uncomfortable, and sometimes when people are uncomfortable, they freeze.

Inflation

For much of the past year, the Fed has been telling us the spike in inflation is “transitory”, meaning temporary. The belief was the supply chain backlog caused by the pandemic was causing short-term shortages resulting in price increases, which would eventually correct itself. Instead of correcting itself, the Fed is finding the problem getting worse. Maybe they overstimulated the economy considering supply cannot come close to satisfying demand….but that is a conversation for another day. A lack of supply, against strong demand, is what causes prices to increase. We have been experiencing that in the housing market and are now seeing it in all areas of the economy.

The Fed no longer considers inflation transitory and is taking steps to help reign it in. In the housing market, the Fed is tapering the buying of mortgage-backed securities and for the larger economy will begin raising interest rates.

Should You Wait to Buy a Home?

Much of the surge in home buying activity we have seen over the past couple of months is most likely the result of home buyers who had been waiting to see if prices would come down, now jumping into the market in an effort to secure a home before mortgage rates rise. After holding fairly steady since September, mortgage rates have already increased close to half a point so far this year. Before you panic, this is widely believed to be the market factoring in upcoming rate hikes and the tapering of the Fed’s purchases of mortgage-backed securities. Projected mortgage rates for the end of 2022 are still expected to be between 3.7% and 4%. Higher than we have seen, but still below where we were trending in the years before the pandemic.

Rents Are Rising Too

Everyone needs to live somewhere. If someone makes the decision that now is not a good time to buy, does that mean it’s a good time to rent? I know it’s not always black and white and there are several factors involved, but the demand for housing hasn’t just caused home prices to rise, rents have been rising as well.

Here’s a look at how median asking rent has increased since 1988;

As home prices soared in 2021, so did rents. According to ApartmentList.com, since January 2021:

the national median rent has increased by a staggering 17.8 percent. To put that in context, rent growth from January to November averaged just 2.6 percent in the pre-pandemic years from 2017 - 2019.

Like with home prices, that pace of rent increases is expected to moderate, but according to the 2022 National Housing Forecast from realtor.com, prices for vacant units will continue to increase this year:

In 2022, we expect this trend will continue and fuel rent growth. At a national level, we forecast rent growth of 7.1% in the next 12 months, somewhat ahead of home price growth…

According to the latest numbers, the median rent in Frisco is $2995/month and $3295/month in Prosper.

One of the benefits homeownership offers is the ability to fix a large portion of your monthly housing expenses for the duration of the loan. As James Royal, Senior Wealth Management Reporter at Bankrate, says:

A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same.

What many potential buyers do, same as me when I bought my first house, is focus on the price. The idea of buying something that expensive is scary. Not only that but the idea that you are losing some freedom by locking yourself into a payment for 30 years. The truth is, unless you plan on being homeless at some point, you are locking yourself into a housing payment either way. The difference is, one is fixed and one can, and will, keep rising.

While inflation decreases what your dollars can buy, low mortgage rates can help counteract that by boosting your purchasing power so you actually get more home for your money. Fixing, and keeping your monthly housing payments down, actually acts as a hedge against inflation.

Ali Wolf, Chief Economist at Zonda, explains:

If you have cash and are expecting inflation, you want to think through where you can put your money so it does not lose value. Housing is commonly looked at as a good inflation hedge, especially with interest rayes so low.

In other words, if inflation is running at 6% and you’re able to obtain a 30-year mortgage at 3.5%, you’re ahead of the game. This is without factoring in equity gain. According to Corelogic, the average homeowner in the country gained $56,700 in equity in 2021. You can’t do that while you rent. Your rent payment only covers the dwelling, whereas a mortgage payment helps you grow wealth through a forced savings that is your home equity.

Bottom Line

I am certainly not suggesting you should buy a home if you’re not in the position to do so, but simply want to make sure you are looking at all the factors before making that decision.

The process of qualifying to buy a home is not as difficult as many potential buyers believe it to be. If you have additional questions or a situation you’d like to discuss in more detail, please give us a call at 469-296-5230 or email Contact@S2RealEstateTeam.com