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.
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