What Inflation will Mean for Buyers and Sellers

There has been a lot of talk in the News Media regarding inflation, and historically periods of recession and depression are commonly followed by periods of inflation.
What will the coming period of inflation mean for home buyers and sellers?

An inflationary period will definitely bring new challenges to the real estate market (Well, some not so new to those who bought homes in the early 1980's- when interest rates where between 10-15%).

For Buyers: Most people who buy a home have to borrow money for the purchase. Borrowers are subject to repay the principle plus interest to their lenders. The interest rates are determined by the lender and established during the purchase process. Today's interest rate for a 30 year fixed rate mortgage is 5.36%, according to BankRate.com. If a Buyer purchases a home with a mortgage amount of $200,000 at today's 30 year fixed rate, their payment would be $1118.07 a month for principle & interest. However, say that the inflationary period causes interest rates to increase- let's say to 7.36%- that same mortgage will cost the Buyer/Borrower $1379.30 a month, a monthly payment increase of 23% for the same house at the same purchase price. We have all gotten use to "cheap" money and low interest rates. Some people might be shocked at a 2% increase in interest rates, but when I bought my first home in 2000, just 9 years ago, my interest rate was 8.25% and that was with good credit.

For Sellers: Selling your home in an inflationary period will be a challenge. Even though prices have fallen in many ares, the overall cost of buying a house will increase for Buyers as they are hit with higher interest rates on loans. This will cause the pool of available Buyers to shrink due to the simple lender qualifying ratios for monthly payment costs. Seller financing and assumable loans were great options in the 1980's, but assumable loans have gone the way of the dinosaur and many sellers don't own there homes out right to offer seller financing. This inflationary period could lead to even lower sales prices to off set the reduced buying power of Buyers and lead to even large amounts of inventory in areas of high priced housing.

So, when I am asked by Buyers or Sellers if we have reached the bottom of the market and if now is a good time to buy or sell a home- my answer would be to act sooner than later. There is no crystal ball to predict when inflation will start setting-in, but past indicators predict that inflation is likely in the near future.