Inflation and the Housing Market | Bankrate
The consumer price index (CPI) rose slightly in December 2023 from the previous month, according to the latest data from the U.S. Bureau of Labor Statistics released on January 11.
The all-subject index rose 3.4 percent over the past year before seasonal adjustment, slightly higher than November's 3.1 percent increase over the past 12 months.
Despite the moderate increase, inflation has fallen from a peak of 9.1 percent last summer and has declined for 12 consecutive months through July 2023. "Progress has been made in controlling inflation, resulting in a significant decline from the peak," said Mark Hamrick, senior economist at Bankrate. "However, the Federal Reserve is not yet ready to declare '\''mission accomplished'\' and consumers are all"still face a significant loss of purchasing power."
Progress has been made in fighting inflation, but the Federal Reserve is not yet ready to declare '{\'mission accomplished'}. - Mark Hamrick, senior economist at Bankrate
The Federal Reserve's first statement of the new year is scheduled for Jan. 31. "The central bank is likely to keep rates on hold at the first meeting of the year," - Hamrick says. "However, investors are betting that the Federal Reserve will start cutting rates in March. But there is still one meeting left before that announcement, and inflation and employment data are expected before that. "
This is how inflation is affecting the real estate market. Despite this overall progress, the housing category, which includes housing costs, continues to be''the main source of monthly CPI growth. In fact, it accounted for more than half of the monthly CPI growth in December. "Housing and auto insurance continue to be trouble spots, driving the sharp monthly increase," said Greg McBride, Bankrate's chief financial analyst. "Housing remains the most significant factor responsible for more than half of the rise in core CPI this month and more than two-thirds of the rise in core CPI over the past year. "
Housing remains a trouble spot. - Greg McBride, chief financial analyst at Bankrate
Nationally, CoreLogic reports that home prices rose 5.2 percent year-over-year in November 2023 and 0.2 percent from the previous month; price growth is projected to be''to continue at a steady pace through 2024. Meanwhile, Fannie Mae's latest Home Purchase Sentiment Index (HPSI) rose 2.9 points in December to 67.2, with 83 percent of respondents believing it is a bad time to buy a home. This negative attitude is likely directly related to current mortgage interest rates, which have fallen slightly from the 8 percent mark in October, but remain extremely high despite lower inflation. According to the most recent Bankrate data, the average rate on a 30-year fixed-rate mortgage is 6.94 percent.
"An important factor this year has to do with questions related to what will happen to mortgage interest rates and the supply of homes for sale," Hamrick said. "If we see''further and more substantial reductions in mortgage interest rates, this could encourage more homeowners to sell their homes. This could result in less upward pressure on home prices, which would offset some of the damage done to housing affordability over the past few years.
26 October
What this means for buyers and sellers
In light of such conflicting signals, should you buy a home now or wait? What about selling your home now?
For Buyers
The chronic shortage of supply remains a problem for prospective buyers across the country. According to the most recent data from the National Association of Realtors (NAR), the nation had 3.5 months' worth of housing inventory in November, which''Still well below the 5-6 months needed for a balanced market. If you're a first-time home buyer, you may want to wait instead of buying now and anticipating further price increases, especially if your income could potentially rise.
Even when inflation stabilizes, it doesn't mean prices are falling; it just means prices aren't rising as fast. - Greg McBride, chief financial analyst at Bankrate
"Even when inflation stabilizes, it doesn't mean lower prices; it just means prices aren't rising as fast," says McBride. "For homebuyers, a more moderate rate of growth or even a period of stable home prices can help boost incomes. Instead of stretching now, you can afford''buy a little more comfortable in a few years if your income growth outpaces house prices. But there are no guarantees.".
Life circumstances may require you to buy a home now, regardless of market trends, and that's a good reason. Just make sure you plan to stay in the home long enough to justify your costs when you eventually decide to sell it.
For Sellers
The housing shortage may present an opportunity for sellers to get a higher price for their homes. This is good news, but keep in mind that if you then need to buy a new home, the situation will change and you will become subject to the same circumstances - and high mortgage rates - as others''shoppers. And remember, location matters. The national median home sale price in November was $387,600, according to NAR, but prices vary widely by location. So depending on your location, you may find fewer interested parties or need to lower the price.
>< tips for buying a home in a high-priced environment.
If you're planning a purchase soon, here are some ways you can expand your housing budget:
- Save for a down payment in a high-yield account:One good thing about inflation and Fed interest rate hikes is that interest rates on accounts with''savings. If you're not already doing so, put the money you're saving for a down payment into a high-yielding account. Just make sure you have access to that money when it's time to make the transaction - some online savings accounts process withdrawals within three days.
- Consider choosing a mortgage bank with low or no fees:While you may be more comfortable applying for a mortgage with your bank, it's common for banks to charge a mortgage origination fee, which is often 1 percent of the loan amount. Many non-bank and online lenders don't, so if you find a no-fee lender with attractive rates, you can save more money when you buy''home. .
- Fix your mortgage rate: When you find a lender and apply for a loan, find out if you can fix your rate. It's not a good time to take the risk that your monthly mortgage payment will suddenly jump in value, right before closing.
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