Should You Buy Today?
Inflation is skyrocketing, interest rates have jumped 74% in the past 60 days, and home prices have appreciated at a pace nearly double inflation the past couple of years. If you are looking to buy, your buying power is down and everything we hear in the market suggests a recession is looming.
However, according to a US Census report and a CNBC article I found, home price appreciation has outpaced inflation for more than 50 years and according to an economist recently published in INMAN News, the only time we have seen significant price drop during that period was during the mortgage crisis in 2007.
Buying a home during inflationary times is the one thing buyers can do to keep up with inflation and even beat it. In 1940, the median home value in the U.S. was just $2,938. In 1980, it was $47,200, and by 2000, it had risen to $119,600. Even adjusted for inflation, the median home price in 1940 would only have been $30,600 in 2000 dollars. This is according to data from the U.S. Census.
So why stretch and buy today?
- Housing prices are going up faster than wages and inflation.
- Buyers can lock in a fixed payment for 30 years – a hedge against rising rental costs.
- Over time, incomes increase, the value of the dollar drops, and a homeowner has a fixed payment.
At any given time, we could see a market correction, but right now, with the lack of a supply of homes, it is not likely. It is also not likely that most current homeowners will be motivated to sell. Why? – the three reasons above and the fact that today’s homeowners are all locked in with 3.5% fixed rate mortgages or lower. And, just like most buyers, homeowners today do not have a lot of options to downsize or make a lateral move.
It may be a tough time to buy a home right now, but if you are in it for the long haul, history has shown us that owning real estate is the number one hedge against inflation and the foundation of most Americans’ net worth.