Inflation and Real Estate: Should You Wait To Buy a Home?

Gayle Kurtzer-Meyers

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Wading through inflation /Photo by Daria Rem from Pexels

Inflationary atmospheres create a bountiful opportunity for real estate investors, especially in hot markets like Florida.

"It's an attractive option as rents are bound to increase right along with inflation. This increases the cash flow for many property owners."-Doug Brien, CEO, MYND-

It's natural to be wary or even fearful about buying a home when there's rising inflation, and whether it's a good idea to buy a house right now can be a tricky question to answer.

Nevertheless, a lot of this trepidation stems from a slight misunderstanding of inflation and how it affects the real estate market. For the most part, investing in real estate is a good hedge against inflation.

As noted, inflation is the devaluing of a currency caused by changes in all kinds of things: supply and demand, logistics, projections, etc. Inflation is a natural occurrence, and one could make a compelling argument that investing in real estate is a more intelligent move than clinging to cash amid a recession.

A dictionary defines a recession as "a period of temporary economic decline." Historically, those who opt for real estate during times of rising inflation tend to come out ahead when the skies clear.

Think of it this way: Clouds don't always mean rain, and inflation isn't always indicative of an imminent financial crisis.

Reasons to go for it.

The numbers indicate a closing window of opportunity. If you intend to buy a house and stay in it for an extended period, you should do it as soon as possible. A slew of circumstances, many of which were related to the COVID-19 pandemic, caused the average interest rates to drop; they're currently lower than they've been in years.

When the pandemic threatened to upend the U.S. economy, the Federal Reserve opted to make bond purchases to stabilize the real estate market and decrease interest rates. However, because the Federal Reserve anticipates dialing back its bond purchasing this year, experts project that interest rates will increase throughout 2022. I think they are correct.

The average interest rate for a 30-year mortgage was 3.09% in October 2021, but the Bankers Mortgage Association predicts that the rate will rise to about 4% by the end of 2022.

If you wait to buy your home, you may end up paying more over the life of your mortgage.

Inflation is not necessarily wrong when buying real estate

Historically, appreciation at least keeps up with inflation and can easily exceed it, which means your money is likely to fare better in real estate than it would in a savings account.

It is especially true in Florida, where certain cities saw a median home price gain of 32% from June 2020 to June 2021; inflation or not, homeowners in Winter Haven and Lakeland won big last year.

Owning a home has several advantages compared to renting

If you're going to pay a mortgage, it might as well be your own. In addition to basically throwing your money away every time you pay rent, renters are subject to a lot of uncertainty. The rent price generally rises, and landlords can ask tenants to leave when their lease is up and they decide to move in a different direction with the property.

While renting can have certain advantages, such as not paying maintenance costs or property taxes, those advantages are often shortsighted.

Many contend that the advantages of buying a home outweigh those of renting. For instance, homeowners who secure a fixed-rate mortgage:

  • Build equity as they make mortgage payments
  • They aren't subject to unpredictable spikes in their monthly payments
  • Enjoy more freedom to live the way they want to without criticism from landlords or neighbors

For people who can afford to buy a home, it's usually a more innovative option in the long run.

Other things to consider

Although you shouldn't let inflation alone stop you from buying a home, there are other considerations that you should always think about before signing on the dotted line.

How stable is your situation?

Before you buy a house, you should do your best to gauge what your situation will look like for at least the next five to seven years. Then, if you suffer a severe financial pitfall, interest rates, inflation and appreciation will be the least of your concerns.

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What is your housing goal? /Photo by Kindel Media from Pexels

What are your housing goals?

Although there are sometimes large and unexpected market booms, such as those in Florida over the last year, appreciation usually takes time. There are many contributing factors, but the average appreciation rate on homes is between 3.5% and 3.8% per year.

When considering maintenance and closing costs, people unwilling to wait for their homes to appreciate could have difficulty turning a profit.

The direction of the neighborhood

The way a given neighborhood is trending can be a good predictor of which way and to what extent its home prices will move. Home values tend to suffer in communities that:

  • Show increasing crime rates
  • Lack neighborhood amenities
  • Have a large number of commercial properties near homes
  • Have a substantial number of dilapidated properties

Buying real estate can be a confusing endeavor, but people willing to buy a home and stay long enough for the appreciation to take its course tend to come out ahead.

"Don't wait to buy real estate, buy real estate and wait."-Will Rogers-

This article is for informational purposes only. It should not be considered Financial, Real Estate, or Legal Advice. The market fluctuates; therefore, not all information will remain the same. Consult a financial or real estate attorney before making significant real estate decisions.

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I am a Licensed Community Association Manager for the State of Florida and a published author. My top articles are about Florida RE, property management, and the many beautiful venues and activities available in the Sunshine State. Thank you for reading my work and joining me on the journey.

Kissimmee, FL
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