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Inflation: What Does It Mean?

Read time: 7 Minutes

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November 18, 2022

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We keep hearing the word “inflation” but what does it really mean? And how can inflation have an impact on the home buying and selling process?

Woman using a calculator sitting at a table with a white porcelain piggy bank

What is Inflation?

When we hear the word “inflation” we usually think about balloons – which isn’t necessarily a bad thing when thinking about what inflation does. Inflation is the word used to describe when prices go up for everything around the same time, like price tags are being pumped up like a balloon.1 It is still the same balloon, it didn’t truly grow in size when it comes to the material, but it did expand. You’ve got the same balloon, just now with air in it.

How Does Inflation Affect Homeowners and Home Buyers?

Inflation helps current homeowners and home buyers in some areas and creates problems in others. Despite some challenges, though, there are plenty of ways to come out on top of inflation.

Home Values Appreciate

Of course, when the price of everything goes up, so do home values.

When it comes to selling a home, inflation drives up the cost of building materials, making new home construction prices higher – this opens up the market of already-existing homes and keeps the higher price tags still attractive to homebuyers looking for already-existing homes instead of custom-building.

Of course, anyone selling their home will use this as a time to sell for a bigger profit than before inflation – or homeowners not looking to move can use the boost in the value of their home to do a cash-out refinance to get out some of the equity they are sitting on.2

To learn more about cash-out refinances, check out our blog here: Cash-Out Refinance & Home Equity: How They Work - Newrez

Fixed-Rate Mortgage Payments Stay the Same

Fixed-rate mortgages are simple to understand, mainly because their names are so exact! Fixed-rate mortgages mean that when you sign on the dotted line, your mortgage principal, interest rate, and payments stay the same despite any highs or lows that may happen while the loan is still being paid off.

Of course, this means homeowners who locked in before inflation kicked up will benefit from having done so. This also means that future homeowners looking to get a mortgage loan have the potential of locking in their rates before they could go higher.2

Property Taxes Go Up

States and counties will also benefit from rising inflation rates, since when a home’s tax value goes up, the homeowner will get a higher tax bill each year. For home buyers, this is an advantage because it will give you pause to run over multiple case scenarios on your own or with a qualified loan officer in order to figure out your purchase power when it comes to prequalifying or qualifying for a mortgage.2

Maintenance Costs Go Up

We all know it – buying or renting, there are always going to be maintenance costs that pop up! The problem, of course, is that when inflation goes up, so do the costs of even the most everyday of repairs like patching a wall or touching up paint. This can be a positive for home buyers, since homeowners who don’t want to pay for repairs that are going to cost more may be willing to cut back on their sale price in order to compensate for the fact new buyers will have to make repairs.2

Lower Home Prices

During a period of inflation, sometimes home prices can actually come down! When prices go up and sales cool off, we naturally see home prices going back down as inflation continues on – this isn’t purely just to sell homes, but because mortgage lenders factor in expenses when calculating monthly payments – the same dollar during inflation doesn’t go as far. This opens up the market for homebuyers who weren’t looking to spend during the height of the inflation uptick but are still passionate about financing a new home purchase.3

Is Inflation Good or Bad?

On one hand, inflation can be a challenge for prospective homebuyers as prices rise and the market gets more competitive as reasonably priced homes are snatched up left and right. On the flipside, while current homeowners sit in their homes waiting for the market to improve so that they can sell and find a home to move into, they’ll likely make upgrades to their existing home while the time is right, giving potential home buyers a bigger, better stock of homes to buy with fresh upgrades.4

Looking at inflation through a long-term lens, there is a positive message. No market same market condition lasts forever, and there is still a bright side in any financial market. If home-sellers and homebuyers strategize and make wise decisions, buying or selling a home is still possible.

The Best Ways to Survive Inflation

The good news is that you may already be pretty good at surviving inflation, because you’re reading this article – you’re staying informed and calculating your next steps even while the market seems a little shaky.

To make it out of inflation in top shape, you’ll need to follow the same rules you likely have in preparation for buying or selling a home – stick to a reasonable household budget, stash away money for home repairs as they come up, and keep an eye on changes happening within the market to know when your next potential buy or sell could be.

Are you looking to buy a home while rates are still advantageous? Give one of our skilled loan officers a call today to go over your options.

Sources:

  1. What is inflation? — Economy (ecnmy.org)
  2. The Effect of Inflation on Home Buying - MintLife Blog (intuit.com)
  3. Inflation in Real Estate: 5 Ways Inflation Affects Real Estate (infinityinvesting.com)
  4. Is Inflation Good for Homeowners? - How Rising Prices Effect Real Estate (moneycrashers.com)

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