How to Navigate Buying a Home During High Inflation

With rising housing prices and interest rates, you may feel pressured to jump on the carousel to avoid being left behind. However, a home is one of the most expensive purchases most Americans will make, and you don't want to rush into a home that isn't right for your needs. Below, we'll explore a few key tips and insights to help high earners who are looking to buy a home during periods of high inflation.

Understanding Today's Housing Market

Before beginning the purchasing process, it's important to understand current market dynamics. This is especially true when it comes to higher inflation. Inflation immediately affects many market aspects, including home prices, mortgage rates, and overall affordability. As inflation rises, interest rates and home prices tend to follow suit, making properties more expensive.

For example, a $300,000 mortgage at 3.5 percent interest will cost around $1,650 monthly for a 30-year term.¹ Adding another 2 percent to this interest rate will increase the monthly payment by nearly $400 over the life of the loan. Be sure your home-buying budget accounts for some flexibility in interest rates. Also, don't assume you'll be able to refinance into a lower rate after a few years; while this has been common advice in the past, you don't want to stake your budget on it!

Tips for Navigating the Housing Market During High Inflation

You can do several things to make the home purchasing process easier, no matter what's going on in the overall economy.

First, stay informed. Set Google alerts for inflation, interest rates, and other key words that can signal market trends. This will help you ensure you consider all possible factors before you make a decision.

Flexibility is also key; if you stay open to exploring different neighborhoods, financing options, and property types, opportunities may present themselves where they otherwise wouldn't have. For example, purchasing a duplex or triplex can allow you to live on one side, rent out the other, and enjoy market appreciation while subsidizing your own mortgage. Homes with in-law suites, carriage houses, or other detached dwelling units can be a way to expand your budget by going in on the purchase with a relative.

Finally, you'll want to seek advice from real estate professionals, mortgage lenders, and financial professionals. They live and breathe the real estate market and can offer valuable insights focusing on your market, budget, and needs.