What Is The Cost Of Waiting To Buy A New Home?

If you’re following along with the news today, you’ve heard about rising inflation and interest rates. Today, inflation is at a 40-year high. According to the National Association of Home Builders (NAHB):

“Consumer prices accelerated again in May as shelter, energy and food prices continued to surge at the fastest pace in decades. This marked the third straight month for inflation above an 8% rate and was the largest year-over-year gain since December 1981.”

With inflation rising, you’re likely feeling it impact your day-to-day life as prices go up for gas, groceries, and more. These climbing consumer costs can put a pinch on your wallet and make you re-evaluate any big purchases you have planned to ensure they’re still worthwhile.

If you’ve been thinking about purchasing a home this year, you’re probably wondering if you should continue down that path or if it makes more sense to wait. While the answer depends on your situation, here’s how homeownership can help you combat the rising costs that come with inflation. 

Homeownership Helps You Stabilize One of Your Biggest Monthly Expenses
Investopedia explains that during a period of high inflation, prices rise across the board. That’s true for things like food, entertainment, and other goods and services, even housing. Both rental prices and home prices are on the rise. So, as a buyer, how can you protect yourself from increasing costs? The answer lies in homeownership.

Buying a home allows you to stabilize what’s typically your biggest monthly expense: your housing cost. When you have a fixed-rate mortgage on your home, you lock in your monthly payment for the duration of your loan, often 15 to 30 years. 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. That’s certainly not the case if you’re renting.”

So even if other prices increase, your housing payment will be a reliable amount that can help keep your budget in check. If you rent, you don’t have that same benefit, and you won’t be protected from rising housing costs.

Feel like today’s interest rates are high? Mortgage rates have risen since the record lows in 2020 and 2021. During the COVID pandemic, the Federal Reserve used emergency action to push rates below 3% and to keep them there. Low rates were never meant to be permanent. The Fed used low interest rates as a tool to keep money circulating due to the economy crashing during the onset of the pandemic. 

With inflation surging, rates have risen, and the Fed is likely to push them higher.
Despite the recent raises, mortgage rates remain below average from a historical perspective. 

Between April 1971 and June 2022, 30-year mortgage rates averaged 7.77 percent. So even with the 30-year FRM near 6%, rates are still relatively affordable compared to historical mortgage rates.

When it comes to mortgage rates, it’s all about perspective. Even with mortgage rates rising, buyers can still secure a rate that’s lower than several of the past decades. But experts forecast rates will continue rising, so acting soon may be your best bet.

Investing in an Asset That Historically Outperforms Inflation
While it’s true rising home prices and higher mortgage rates mean that buying a house today costs more than it did even a few months ago, you still have an opportunity to set yourself up for a long-term win. That’s because, in inflationary times, you want to be invested in an asset that outperforms inflation and typically holds or grows in value.

The graph below shows how the average home price appreciation outperformed the average inflation rate in most decades going all the way back to the seventies – making homeownership a historically strong hedge against inflation:

So, what does that mean for you? Today, experts forecast home prices and interest rates will only go up from here thanks to the ongoing imbalance of supply and demand. Once you invest in a home, any home price appreciation that does occur will grow your equity and your net worth. And since homes are typically assets that grow in value, you have peace of mind that history shows your investment is a strong one.

That means, if you’re ready and able, it makes sense to buy today before prices rise further. Do not let your buying power erode any further.

Bottom Line
If you’ve been thinking about investing in a home this year, it makes sense to act soon, even with inflation and interest rates rising. That way you can stabilize your monthly housing cost and invest in an asset that historically outperforms inflation. If you’re ready to get started, let’s connect so you have expert advice on your specific situation when you’re ready to buy a home.

Brunswick Forest questions contact:
Kate DaSilva 910-742-5736 or kate@kenthomes.net

St. James or Scattered Site questions contact:
Carol Hobbs 910-619-0777 or carol@kenthomes.net

Compass Pointe questions contact:
Kayla Paladino 910-599-6739 or kayla@kenthomes.net