Increases in the costs of building materials—due to inflation and ongoing supply chain issues—could boost housing prices further this year as homebuilders pass those on to consumers. For instance, lumber prices are at their highest in months. Supply shortages aren’t helping either.
Another risk posed by inflation is that as the prices of other goods rise—like food and gas—potential homebuyers could be left with less to spend on real estate, leaving sellers in the lurch. But Tucker predicts that consumers will trim the fat from more discretionary spending like travel, clothing and entertainment—leaving more room for necessities like housing.
Is now a good time to buy a house?
It all depends on individual circumstances. While owning a home can save you from annual rental increases, property prices have soared.
“If it’s not a lifestyle situation where you want more space or want to move to another geographical location, this might be a time to wait it out from buying,” said Liz Young, head of investment strategy at SoFi. “The risk is that the equity in the home doesn't go up a ton in the next few years because home prices are so high. From an all-time-high price level, there’s downside risk to prices in the near term.”
For those interested in staying in a home for more than five years, buying makes sense, she said. But if you think you might have to sell before then, it might be better to wait.
Still, if the move is brought about by necessity, not to fret. Mortgage rates, though creeping up slowly, are still historically low: The average for a 30-year loan is currently 3.56%, up from 2.65% a year ago. That’s an advantage for those buying a home now, said Randy Frederick, vice president of trading and derivatives at Charles Schwab.
“If you can lock in a low rate, it can certainly be beneficial if it's your view that inflation is going to move higher or stay elevated,” he said.
With the Federal Reserve’s planned interest rate hikes, the sooner the better. The same goes for any current homeowners looking to refinance.
“The best time may have passed but certainly rates are still very low relative to inflation,” said Aneta Markowska, chief financial economist at Jefferies. “Anybody who refinances now is going to lock in a still incredibly attractive rate.”
Fiona Cincotta, senior financial market analyst at City Index, recommends that those with adjustable-rate mortgages—which have interest rates that can fluctuate—look to a fixed-rate mortgage now to take advantage of the current environment.
“If you’re going to look at your mortgage, now is the time,” she said. “You don’t want to leave it until the third quarter of the year.”
Are the trends the same in the U.S. as in Europe?
So far, both the U.S. Federal Reserve and the European Central Bank are planning interest rate hikes to curb inflated prices. Last month, the Bank of England increased its base rate to 0.25% from 0.1% and the country’s inflation rate reached a 30-year high at 5.4%.
Still, inflation growth is slower in Europe, where GDP dropped around 8% in France compared to a 3% decrease in the U.S. in 2020. Average prices as a result increased at a slower pace in Europe, with inflation in France at 3.4% over the past year compared to 7% in the U.S.