Should Inflation Change Your Homebuying Plans?

February 01, 2022


Inflation has reached a 40-year high. What does that mean for you as you consider whether or not to buy a home in 2022?

New suburban house with nice lawn

You've likely noticed that life grew more expensive in 2021. A combination of government aid, demand for goods and bottlenecked supply chains has increased the cost of everyday items, including housing. This is known as inflation. When it occurs, it generally means your hard-earned dollars don't stretch quite as far as they used to.

In 2021, inflation rose to a degree last seen in the 1980s. Some of the largest and most necessary living expenses cost 7.0% more at the end of 2021 than at the end of 2020. This included homes. In 2021, the median sales price for all houses sold in the United States reached $400,000 for the first time ever, up nearly $70,000 dollars from 2020.

The nation's central bank, the Federal Reserve, aims to combat inflation by pulling money out of the economy and increasing interest rates.

Though the Federal Reserve has yet to act on this approach, mortgage interest rates have already risen in anticipation of the change. According to the results of Freddie Mac's most recent Primary Mortgage Market Survey®, the interest rate for a 30-year fixed-rate mortgage averaged 3.55%, up from 2.73% at this time last year. We forecast that interest rates will average 3.6% in 2022 and 3.9% in 2023.

To summarize: Houses have never been more expensive and now rates are rising. So, should you hold off on buying a home?

The Case for Buying a Home Today

If you're financially ready, now may be a great time to buy.

Not only will buying today help you begin to build equity, a fixed-rate mortgage can stabilize your monthly housing costs for the long-term even while other life expenses continue to rise — as was the case in 2021.

Housing costs increased in 2021 due to a combination of factors: inflation mixed with a high demand for housing (due to low rates and work-from-home arrangements) and a low housing supply.

The average home price, for instance, increased nearly 20% year-over-year. For those looking to buy this year, we forecast a moderately lower demand for homes, due to higher mortgage rates, and we expect house prices to cool somewhat.

Rents also increased in 2021, though not to the same degree as home prices. Rents increased 13.5% in 2021, but in our recently released 2022 Multifamily Outlook, we forecast modest growth in the cost of rent, at 3.6%, for 2022.

Although rents and home prices are likely to remain expensive, there are advantages to buying a home today if you're ready. Rents typically increase between 3% and 5% each year, though your landlord or management company may charge more depending on the terms of your lease agreement. On the other hand, homeowners with fixed-rate loans will see little to no change to their monthly housing cost over the life of their loan. You can be confident in knowing that your mortgage payments won't change much in the long term, even when life's other costs do.

To determine the best loan type for your financial needs, speak with a lender.

For more information about the homebuying process, visit My Home by Freddie Mac®.