Buying a House? How Inflation Affects You

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(This article was originally published in NextMove, our weekly newsletter on the housing market. Sign up for it using the box below.)

The highest inflation in decades keeps rearing its ugly head everywhere. But it isn’t just hiking the price of pasta at my neighborhood Italian joint. If you’re thinking of buying a home soon, it will affect you in more ways than one.

This is Jon Reed with NextAdvisor. Next week, November’s Consumer Price Index, which measures the average change in prices for certain goods and services, is released, and it could mean a whole lot. It will help determine how the Federal Reserve moves forward with rate hikes that could significantly slow the economy – and maybe lead to a recession.

If you’re considering a home purchase, this matters because of the connection between mortgage rates and inflation. Mortgage rates have doubled this year, reaching as high as 7%, which has significantly increased the cost of buying a home. They’ve since come down a bit after reports showed inflation starting to cool down in October.

If next week’s data show more signs of cooling, experts say mortgage rates are likely to decline further. If your New Year’s resolution is to become a homeowner in 2023, that’s good news. But we could also see the opposite. 

What can you do? If you read my newsletter, the answer will sound familiar: Buy a home you want at a payment you can afford. 

Here are some ways to make sure you’re getting a solid mortgage rate during these uncertain times:

Shop around. Don’t just go with the first lender you hear about. Get loan estimates from multiple lenders, preferably on the same day (or at least close to it) and with the same terms. Compare the rates and the APR – that will show the total cost including upfront fees.

Stay within your budget. Give yourself plenty of cushion to be able to afford a monthly payment. Nothing is scarier than buying a home and then losing work or seeing your income drop and being unable to make the payments. So don’t shop at the top of what you’re approved for. Start with a monthly payment you can afford and work from there to see how much home it’ll buy you.

Don’t rush a home purchase. Sure, you see headlines about rates starting to go down, but the truth is you can buy a home in any market if your financial situation is right. Don’t try to make it happen just because of what’s happening in the market.