In this video, we’re looking at the impact of inflation on the housing market. In particular, we will consider:
💵 What the Fed is doing to fight inflation
💵 How interest rates affect the housing market
💵 The impact of higher rates on bidding wars, market time, & sale price
💵 How owning a home compares to other investments
💵 Owning vs. renting
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Eric Andersen, B.A., M.Div.
Owner/Designated Managing Broker, Eric Andersen Homes
📲 Text/Call: 708.674.6725
📩 Email: eric@eandersenhomes.com
🌎 www.ericandersenhomes.com
I have a number of awards and designations, including:
⭐️ Platinum 2021 Top 1% Sales Award (Mainstreet Organization of REALTORS®)
⭐️ Top 3 REALTOR® in Brookfield, IL (2021)
⭐️ 20 under 40, class of 2021 (Mainstreet Organization of REALTORS®)
⭐️ Gold 2020 Top 3% Sales Award (Mainstreet Organization of REALTORS®)
⭐️ Endorsed Local Provider (RamseyTrusted)
⭐️ Best of Zillow
⭐️ Pricing Strategy Advisor (National Association of REALTORS®)
⭐️ Certified Staging Consultant (Mainstreet Organization of REALTORS®)
Transcript:
What impact does inflation have on the housing market? I’m Eric with Eric Andersen Homes, and the Federal Reserve has been fighting inflation by raising interest rates. In recent times, we’ve become spoiled by record-low interest rates. Not long ago, I heard buyers complaining about 4%. Today, getting 4% might feel like winning the lottery. But older homeowners remember getting excited about getting a rate as low as 8%. Anything not in the double-digits was considered excellent. And while nobody is currently predicting double-digit mortgage rates, rates have been rising, causing the housing market to soften a bit as buyers wonder whether buying a home is still worth it. As rates increase, affordability decreases. Assuming the same purchase price, your monthly mortgage payment will be higher today than it would have been at a lower rate. Many buyers are now priced out of homes they could previously afford. Higher rates reduce purchasing power. On the other hand, as the market continues to soften, buyers aren’t paying quite as high of a premium for homes right now as they were a year or two ago. The insane bidding wars with twenty offers, waiving the inspection, and covering the appraisal gap are, for the most part, behind us. Home values have and will continue to rise, just at a more gradual, normal pace, and paying a 10% premium over asking price is, for the most part, not happening any more. There still are bidding wars on nice, well-priced new listings, but the level of competition isn’t quite as fierce, and the frequency of bidding wars is decreasing. Homes are still selling the first weekend on market, but it’s not unusual for a home today to sit for a few weeks or even month before a buyer comes along. Another thing to consider as inflation drives rates upward is that homeownership has traditionally been a great hedge against inflation. While real estate doesn’t historically generate the returns of, say, the stock market, it tends to be a much more stable investment. Buying a home locks in what is often the largest portion of your budget, which is housing. As the cost of living continues to increase, rent is also increasing. And aside from paying a higher rent, renting generates a 0% return on investment. The other thing to consider is the economy is always changing. Home values typically increase even during recessions, and mortgages can be refinanced. This is where the phrase, “Date the rate, marry the home” comes from. And while there are risks with adjustable rate mortgages, I’ve had some clients take advantage of them recently to secure a better rate in the short-term. Ultimately, the question of whether it’s the right time to buy a home will depend on your circumstances more than anything else. If you’d like my help with buying or selling a home in the western suburbs of Chicago, reach out any time. I’m Eric with Eric Andersen Homes, a family-owned brokerage where we treat our clients like family.