It is a very stressful and overwhelming process to buy a house, especially during inflation where financial experts are suggesting to buy homes now because house prices are going up. However, let’s first define inflation. Inflation is the rate at which the value of currency is falling, and consequently the general level of prices of goods and services is also rising.
You may be considering whether to buy in this volatile market. Is it a good idea to buy given the rising interest rates, erratic stock market and rising gas and food prices?
These are all valid concerns, particularly in light of the current state of global instability. In this blog, we’ll go through the top three benefits of purchasing real estate during an inflationary market.
- The Price of Goods
What happens to coffee also happens to real estate. Real estate is an asset that goes up in value. However, it’s not like a coffee where it’s consumed. You don’t just eat or drink the real estate or like most cars where after you drive it loses value. It’s an asset that goes up in value, especially during an inflationary market. And remember, the price of a home is massive, so when it goes up it’s game changing.
- Loan (Fixed Cost Debt)
The loan rate is fixed for 30 years or during the initial period of the loan. That means when you buy the house, it’s usually a fixed rate for the life of the loan or the initial portion, meaning your monthly payments are the same. It doesn’t matter if the rates continue to go up because the cost of your loan has been locked in already. The benefit is that the value of your home will continue to go up during the inflationary period but your cost will continue to stay the same.
- Increase in Cash Flow
Because you have fixed debt costs, your monthly payments are the same and rents will continue to rise if you’re renting out your property, that will therefore in turn, increase your cash flow. That’s another reason why it’s not a good idea to be a renter in today’s market.
With this high inflation, there’s benefits to buying real estate today and that’s the reason why one of three homes that are purchased nationally today is purchased by an investor.
If you are in the market to buy, the rising interest rate surely has an effect on your buying situation. Your monthly cost just went up and essentially which means that your offer price now takes a hit.
Here’s a strategy called the seller paid buydown. Instead of writing an offer that’s drastically lower than the seller’s expectation, offer their price but negotiate it with the seller’s concession. Have the seller pay a smaller portion to buydown the rate. With these results in, the seller will get their price and you get a much lower monthly payment. It’s a win-win for both sides.
If you’re a buyer only planning to stay for a short period of time at the home, maybe 3 years, 5 or less than 10 years, talk to your lender about an adjustable rate mortgage. The name is a bit confusing because it’s an initial fixed rate of 5, 7 up to 10 years and then it becomes an adjustable rate. It’ll benefit you because the rates are much lower than a standard 30 year fixed rate and you’re not and you’re not planning to stay there for 30 years, therefore you’ll be moving a refinancing beforehand so it really does not benefit you getting the higher rate for that 30 year mortgage.
I hope you learned something from this blog. If you have any further questions, please don’t hesitate to contact me at [email protected] or 650-255-1511. Additionally, if you would like to see what homes are available for sale in the area or want to schedule a showing, please feel free to contact us anytime!