Here's how inflation will affect your next real estate move!

[Aaron Morrow]

Here's how inflation will affect your next real estate move!

Inflation has seen the largest change in the last year since December of 1981.

People across the nation are feeling the 8.5% price growth at grocery stores and gas pumps, but what about the housing market?

Rising home prices and rents have already made things difficult for would-be home buyers, and inflation adds fuel to the fire causing both prices and mortgage rates to increase.

The Federal Reserve likes to see an inflation rate of around 2%.

With the current rate being far beyond that, they are using the the federal funds rate - the rate at which banks lend money to each other - in hopes to rein it in. By increasing this rate, they make borrowing money more expensive to curb the growth and ultimately lessen inflation.

Unfortunately for home buyers, these rate hikes mean that if you want to have the same mortgage payment you will need to look at lower-priced homes.

While the increasing prices and mortgage rates may make buying a house seem impossible, it is not! Here are 3 tips to help you navigate the market:

1. Buy now

The mortgage rates will continue to rise, as will home prices.

If you want to avoid further hits to affordability, time is of the essence.

It will be cheaper to buy now as you lock in a price and payment in today’s dollars, especially considering that the Feds expect the inflation rate to rise.

You will also have the opportunity to benefit from the increase in home prices, as you gain equity quickly.

With rent prices also increasing, you might be doing yourself a disservice by waiting.

“Rent prices are increasing right alongside home prices, so you may not be saving much by waiting to buy if you end up spending a lot of time paying someone else's mortgage at inflated costs.” says Maggie Gomez, a certified financial planner and founder of Money with Maggie.

2. Adjust your budget

It will be important to look at your finances and determine the maximum amount you can spend on your mortgage payment.

Factor in the higher cost of living as you look over your monthly budget. Talk with your lender and agent about your best plan of action regarding your down payment.

Consider how much money you want to put into a down payment, and how much to keep back for additional down in case of low appraisal.

Once you determine your absolute cap, you will know what your “highest and best” offer will look like and when it will be time to walk away.

3. Expand your search

Once you nail down your budget, you may want to rethink exactly what you are looking for in a home. The single-family home with property may no longer be in your budget.

Consider looking at condos, townhomes, or smaller properties. Search in areas farther out from the city, in less in-demand areas where prices will be lower.

As home prices rise, your home equity will too.

Even if you find yourself in a home that is far from your dream house, the equity you will gain will give you a leg up when you decide to sell and buy again.