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Fence Sitters Should Fear Inflation

We mention this frequently but we think high inflation rates are on the horizon.

High Inflation has two effects on housing (1) it drives rates and payments way up; and (2) it drives up real estate prices, as “hard assets” usually appreciate with inflation.

We will focus ONLY on rate increases today, as an illustration as to why to buy now rather than wait even if you think home prices might drop.

30 Year Rates are at 4.375%*, as quoted above. Throughout most of the 1990s, rates were over 8%. Additionally, rates were close to 10% throughout most of 1980s.

A $400,000 Purchase with 20% down and a $320,000 mortgage will give you a mortgage payment of $1,598 (30 Year Fixed at 4.375%).

But now let’s assume every fence sitter’s fear comes true: values drop 10%, and that same house can be bought for $360,000. BUT, let’s also assume inflation has set in and rates are 4% higher.

A $360,000 Purchase with 20% down and a $288,000 mortgage will give you a mortgage payment of $2,189 (30 Year Fixed at 8.375%).

Our Point: The house is 10% cheaper, but the payment is almost $600 higher. And, this assumes “1990s rates” when there was actually minimal inflation. Rates will go up, and every fence sitter out there will rue their fence-sitting ways.

Our final point (again): Buy Now.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167