World events and government spending has led to soaring inflation. The Federal Reserve has only one tool in its arsenal to curb and reduce this trend – raising interest rates. While contemporary home buyers are accustomed to interest rates in the 2-4%, older homeowners remember being excited to get one as low as 8%. As yet, we have no indication such a drastic increase is necessary, home mortgage interest rates are creeping up and potential home buyers may be asking if they should still try to buy a home.
One of the first things to consider is affordability. A higher interest rate will impact the amount of the loan each buyer can qualify for, potentially reducing their spending power. Yet, home prices are also beginning to soften, so it’s possible that this correction will reduce any possible impact from rising rates.
Secondly, home ownership has been a strong hedge against inflation historically. Buying a home locks in the cost of the largest budgetary portion of your expenses – your housing cost. As the cost of living continues to increase, rents will also rise, continuing to add pressure to an already strained household budget.
Finally, things change. Recessions do not last, home prices eventually rise, and home mortgages can be refinanced. Most homeowners move every 5-7 years and so potential home buyers should plan for this timeframe when making decisions.
Is this still the right time to buy a home? Inflation does have an effect, but it does not necessarily mean that one needs to hold off on a good home purchase.