What You Need To Know About Inflation and Rates

What you need to know about interest rates and inflation as a buyer.


I know a lot of you are watching interest rates right now. Since we’re getting an array of of questions about them, today I wanted to talk about inflation, interest rates, and buying a home in 2022.


If we look back in time, there’s a precedent for what’s going on in the current market. In the early ’80s, we had massive consumer price inflation, and the Federal Reserve dealt with that by raising interest rates very quickly. Some people think that could happen again.


Do I see rates going to 8%, 10%, or even 16%? Not really. Today we have this anchor called the federal debt; if rates got that high, the government wouldn’t be able to service its own debt. It’s unlikely that rates will return to those historic highs, but they will probably go up in 2022.


“Rates have risen an unbelievable amount these past few months.”


The Federal Reserve has called for four or five rate hikes this year, and while those federal rates are not directly connected to mortgage rates, they do affect them. Some of my clients saw rates as low as 2.5% last year, but as of mid-February, rates are hovering around 4%. 


Keep in mind that a 1% increase in rates comes out to a 10% change in your payment. If you bought a $300,000 house with today’s interest rates, it is the same as if you purchased a $330,000 home at the previous rate.


Inflation causes two kinds of price growth in the real estate sector: home price growth and rental price growth. It’s unbelievable how much rents have risen across the country in the last few months, and it can be a huge problem for people looking to rent in today’s market. 


Home prices have also gone sky-high. A $200,000 home a year ago probably costs more like $270,000 today. The benefit is that the mortgage payment on that house will be less than you would pay to rent it. Even with all these big moves, homes have remained more affordable than renting.


In short, it is a great time to buy. If you are looking for a new home, call or email me today. I’d love to come up with a unique strategy for your situation. If you just have some questions, I’d be happy to answer those as well.