According to Forbes Magazine, The New York Times, and the rising cost of gas, hyper-inflation could be headed our way. As the market shifts in response to rising interest rates, we still believe it’s the very best time to make that home purchase. The bottom line? Rent is only going to go up while a mortgage is fixed.
Here’s what Jenni and I have to say about why you shouldn’t let the idea of hyperinflation scare you out of your home-buying plans.
The reality is, that we have been reaping the benefits of historically low interest rates since the economic crash in 2008. This is all part of the Federal Reserve’s Quantitative Easing Program and has been in place for the better part of a decade.
The unfortunate drawback of this combined with the influx of recent stimulus funds is that it is putting us at risk of hyperinflation.
The government’s solution to this problem is to raise interest rates. This is because, as the cost of borrowing money increases, spending and therefore pricing, decreases.
In the housing market, we have watched the combination of low interest rates and high demand for housing create a sharp increase in home prices. This is why the housing market is absolute bonkers right now.
The hope is as interest rates slowly increase, home prices will stabilize and even come down a bit. All that said, we don't believe this is a housing bubble and we do not foresee the risk of a housing crash. (For those of us oldies who remember 2008) This is because there is still a low inventory of housing on the market and because there are so many more checks and balances in place to ensure responsible lending.
Here’s why it’s still a really good time to buy a home, especially if hyperinflation is headed our way.
The main key to homeownership is that having a mortgage fixes your costs.
What we mean by this is once you lock in your interest rate and home payment, you can continue to make the same payment for years to come, while the cost of rent will continue to rise with the rising cost of houses.
This actually helps you combat the added expense of hyperinflation because the cost of your housing is relatively low over time. (Win-win)
Additionally, the value (or equity) of your home will continue to increase in the face of hyperinflation. This is because as inflation goes up, people tend to demand higher wages. As we are in a labor shortage already, people will have more leverage to demand higher wages and a higher capacity to pay for more expensive things which can lead to increased home values. (So if you haven’t asked for a raise yet, it’s time.)
Finally, bear in mind that as interest rates go up, the cost of owning a house increases. For instance, when I had a $230,000 mortgage in Holladay, I had a 6% interest rate and an $1800 monthly payment. Now, at a 3% interest rate, my $425,000 mortgage payment is $1930 a month. So it’s only about $130 a month more than my $230k purchase but I have double the money borrowed.
This means that waiting to purchase a home until home prices drop, may mean you are purchasing at around the time interest rates have increased to a point that your monthly mortgage payment is roughly the same on a less expensive home. (Bummer)
The reality is that experts have been predicting hyperinflation for about five years. It has just been delayed. If you can lock in a mortgage you can reasonably afford now, you will only have greater financial stability moving forward.
Another point we’d like to make is about investing in rental property. We have seen many clients who plan to retire down the road, purchasing condos now. They will purchase them now, and rent them out while they make preparations to retire. This ensures that they are able to secure the condo at a lower rate and allows them to build equity and possibly even cash flow the property as they rent it for higher than the original mortgage payment.
It’s important to remember that time in the market is going to give you the highest return on your investment. So we aren’t talking about flipping a home, we are talking about long-term investments of five or more years.
To sum up, don’t let rumors of hyper-inflation or the realities of this wild housing market scare you into financial paralysis.
Monique and I (and our whole team) are available to help you through the wildness of this market and into a home buying strategy that will help create a foundation for your ideal financial future.
