Ep 67 – How High Inflation Is Affecting First Time Home Buyers 

 December 23, 2021

HBH 67 | High Inflation Home Buying

Inflation! This might be the new thing that will freak us out at the end of 2022. Yes, inflation sucks, and it will affect our economy big time! The question is, what can you do about it? What SHOULD you do about it especially if you’re thinking of buying your first home? Listen in as David Sidoni discusses what inflation is and how it affects buying your first home.

How High Inflation Is Affecting First Time Home Buyers

How Is The Real Estate Market Affected By Rising Inflation

What Is Inflation?

If you’re younger than 40 years old, you have never experienced this jacked-up inflation before. You may never even heard of inflation before. What is inflation? How does it affect buying a home?

I have a festive holiday topic for you. If it’s Christmas time, Hanukkah time or Kwanzaa time, great. If this is a New Year’s topic, this is an exciting good holiday and good spirit stuff. We’re going to talk about inflation. It’s an oldie but a goodie. It has been a while and you might have never heard of it but it’s back. If you’re new, I know you’re going to subscribe. Who doesn’t want to read a holiday episode about how your dollar is shrinking and how expensive groceries and gas are getting? It’s the most wonderful time of the year.

You might never have thought about it before in your lifetime but now suddenly, you get it because it’s hitting you right where it counts and you’re growing. It’s hitting you in your wallet or wherever your money place is. Maybe some of you think you’re growing with your money place. You do you. Inflation means stuff costs more. If you want to know why, here’s a tip. Do not believe everything you read on Twitter, Facebook, Reddit or on a Google search. I’m here for you. I got you on this. I’m going to give you a summary of the things that matter to you. That’s why we’re here.

HBH 67 | High Inflation Home Buying
High Inflation Home Buying: Changes in short-term lending regulations will bump up mortgage interest rates. And these are long-term loans that will be affected by the short-term loan market.

I have been keeping up with this since inflation first became a thing earlier in 2021, probably when you never heard of it because it wasn’t on the news. That was when the inflation rate ticked up above the 2% or 3% range and 2% is where they like to have it. That’s when people start to pay attention to the inflation rate when it gets above 2%. It’s when prices for normal regular stuff go up. We went above that standard what they like 2% increase earlier in 2021 and it was far from a typical year. It’s a pandemic year. It’s crazy.

We did have a little stuff going on in 2021. We had more pandemic drama and no-drama drama. We had disrupted supply chains throughout the world, slowing down everyone’s Amazon packages. We had shifted demand in that old supply and demand economic equation. If there’s less stuff on the shelf because the supply chain can’t get it there, suddenly, they start charging more for stuff. That’s inflation but that’s not the only reason why there’s inflation happening.

Inflation Drama: A Bad Reality Show

In many unexpected ways, lots of random things happen. The federal government had to provide multiple rounds of fiscal and monetary relief. It’s those fun little stimulus checks we got from the treasury but all that didn’t stop the inflation drama. Similar to a bad reality show, the drama kept coming. I don’t know. Drama or reality show? That’s cool.

We hit that 2% or 3% inflation in the summer and the articles started coming out when we hit 4% inflation. The November numbers came out at a 6.8% increase in consumer prices. You have to go back to the bitching ’80s to find consumer prices going up like this. It was rad inflation back then. It’s totally tubular gnarly to the max.

[bctt tweet=”There’s a saying that goes, “It’s the hope that kills you.” That’s incorrect. It’s the lack of hope that comes and gets you.” via=”no”]

What has been going down? I have been reading every article about this for months in 2021 because I’m that exciting of a dude. I’m reading on a bunch of crap that suddenly now, in October, November and December 2021, everyone is starting to pop off about like they are some kind of an expert. I have been doing a deep dive into the Matrix. I have all the data and important stuff that matters to you. A lot of it might be stuff that you have never heard of or likely haven’t read much more than a headline of information as people start to talk about it.

I’m going to tell you how all these things affect you, the first-time homebuyer. How does this inflation thing affect you? I’m not going to get all up into it because I’m pretty sure you don’t want to know everything about the CPI, the Consumer Price Index or the tapering of bond purchases, quantitative easing, volatile price classes, stagflation or hawkish policy matters. Hawkish is a fun word. Hawks generally favor borrowing costs to quell inflation, while the doves typically emphasize lower rates to fuel hiring. It’s super thrilling stuff. I have been reading that.

Every night, my nights are lit. How my wife lies next to me and resists me is a mystery to me. It’s exciting stuff. Don’t forget there are also a bunch of different kinds of inflation. There’s core inflation, transitory inflation, wage inflation, cost-push inflation, demand-pull inflation and my two favorites, imported inflation. That one is simple. That’s like domestic inflation but it comes in a green or brown bottle and it costs a little bit more. There’s hyperinflation. That’s like regular inflation on Mountain Dew.

The bottom line on inflation is this. You probably didn’t see it like this before. The stuff that you need to buy now costs more and you can feel it. It’s the largest annual increase in the past years. Food has gone up 6%. Gas is up 58%. Rents, we all know about that if you read the show. It’s 10% if you’re lucky. Maybe it’s 30%, 40%, 50% or sometimes 60% depending on where you live.

For those of you who don’t live where I do in sunny Southern California, get ready for a heating bill bomb this winter. Natural gas is going up 25%. I got a little tip for you. Invest in those Snuggie blankets that wrap you up from head to toe. Wrap yourself up on that and keep your heater set at 54 degrees. It’s going to be way cheaper than your heating bill.

What does all of this have to do with buying a home? It’s money. If you’re saving for a home, you put aside what you can every month to save up for your down payment. That doesn’t become as easy when you’re paying more for all the essentials but there’s a whole lot of other big stuff besides the obvious. Rising inflation will be one of the major components to what forecasters are predicting will be higher- home mortgage rates. That’s the mortgage interest rate for you in 2022.

As I have been saying in previous episodes, if you have been thinking about this and you’re getting close to pulling the trigger in 2022, that’s the time early in 2022 before we see those mortgage interest rates go up. Anytime we see a rise in inflation, what lenders are doing is they are giving out money. They want to be repaid on a future date but now they have lost value in that repayment of those dollars they lent out for home purchases. To make up for it, they are rising mortgage interest rates that help compensate for when they get paid back in the future.

HBH 67 | High Inflation Home Buying
High Inflation Home Buying: Housing prices went up way before inflation. This stuff happens all the time and people still sell houses, first-time buyers still buy houses.

I’m going to try not to go into the boring financial details but I got to make sure you know what I know what I’m talking about. Also, hopefully, you can use this information in this dialogue when you ask your parents for a loan for your down payment. You can talk to them about all this crap. They eat this stuff up. There’s another interest rate that you’re going to hear about. It’s not your mortgage interest rate but you’re going to start hearing a lot about it in the news.

The federal funds rate, that’s the average interest rate that banks pay each other and they set it every night. The rate that they pay each other overnight borrowing, it’s in the federal funds market. Hang in there. I know this is boring crap but I’m going to bring it all home soon. Here’s what happened. In the November meeting, the Federal Reserve maintained that they are going to keep their target federal funds rate. That’s the benchmark for all those banks loaning money to each other. They are going to keep it where it has been between 0% and 0.25%.

This is probably going to change in the second half of 2022. That’s what matters to you because they could raise mortgage interest rates once that federal fund rate starts to move a little bit. The fed rate and your mortgage rate are not absolutely connected but they are kind of connected. It is going to get confusing for you if you listen to CNBC or read a Wall Street Journal article because they are going to be talking about rising rates. They just say rates.

They don’t say which one because they assume that the listener or the reader has the financial acumen to know what the information is pertaining to and therefore understand if they are talking about the federal funds rate or mortgage interest rates. To contain mortgage interest rates and also to battle rising inflation, the Fed sometimes is going to start manipulating that lending rate there. How was that? It makes total sense. You’re feeling it. I know you’re not. Don’t stress. Trust me. This is what I do. I nerd out for you.

Here’s what you need to know. Expect that the 3% mortgage rates where they are about now, people are anticipating jumping to 3.7%. Some folks are saying 3.9% by the end of 2022, if not earlier. That means your monthly payment for the same priced house is going to be more per month because the interest rate adds to your PITI, which is your total payment. Inflation sucks in a lot of ways but if you’re thinking of becoming a homeowner, there’s a big silver lining in owning versus renting.

Lawrence Yun, a Chief Economist with mad stats and data, says this. “One aspect of inflation is that real estate is proven to be a good hedge. In the 1970s, there was a high inflationary period when the Consumer Price Index averaged 7.1% per year. Home gains outpaced that 7.1% inflation with a 9.9% gain.” This is me now. This isn’t Uncle Larry. This was nuts back then.

I was born in 1970. When I was 7 or 8, I remember my parents freaking out about inflation. I didn’t understand any of it. All I know is sometimes we had to wait in line for gas because there was a shortage. I don’t think it was connected but for some reason, my dad would freak out and start yelling about Jimmy Carter and inflation. I still remember that. That was crazy back then. It was 7.1% inflation. It happened for the whole decade but housing beat it and went up 9.9%. That part I didn’t know back then. I just figured it out now.

Back to Uncle Larry, “Even when interest rates soared in the 1980s, thereby crushing home sales, home prices still held up to the consumer price inflation.” The inflation was at 5.6%. Remember, home sales got crushed but home appreciation was almost right with it at 5.5%. That’s because rents were soaring. Uncle Larry said that, not me but does it sound familiar? Back to Uncle Larry, “Other decades also show similar patterns. Therefore, for those concerned about the loss in purchasing power of money and savings, be assured that real estate is proven to be a good hedge against inflation.”

A lot more economists have continued to predict inflation is going to peak over the next few months but they are saying they are expecting it to taper off in 2022. I have got reasons for that. I’ll explain in a little bit. The government hates inflation. They are going to do everything they can to stop it. This administration said that they are going to be redoubling their effects to squash it as opposed to just doubling.

[bctt tweet=”A slow pace, compared to lightning fast, is still a gain. So, if you can, jump on it.” via=”no”]

To be clear because I mentioned the Fed and what the administration is doing to help the economy, make sure that you understand. I have no political agenda in what I’m reporting. This is facts and data, no politics. One of the things that I need people to understand who we’re listening to is we all have to realize that the whole world now is listening to things with political lenses on. You might not even realize it. That’s because people are commenting on facts with political viewpoints more than ever now.

This might be all you know but this is different. We’re all trying to figure out how to get facts and data without any political slant. It seems like they are putting that on everything. We’re not doing it here. I know a famous real estate forecaster who has been posting pertinent real estate information. Sometimes he tries to gather some information to get a feel for what is going on from other professionals in other parts of the United States and Canada.

For the last decade, he has posted this simple post. He takes a picture of the gas prices where he is and he says, “This is where it is. What is going on with you?” His post when he did that in 2021 totally changed. In the past, people would be like, “It’s this guy and he is gathering data. It’s cool. They would send the data back.” He said, “In 2021, it was a completely different reaction.” He got ten times the comments he ever had before but 90% to 95% of them all had a political viewpoint.

People got savage in the comments section. There were Conservative blasts and Liberal defenses. He said there were even some people saying, “You shouldn’t be buying gas at all. We should all be going electric.” The guy was trying to gather data from other places. I want you to understand things have changed. Everyone has been trained to look at everything through a political lens. Put your lens down.

Don’t assume that I have mine on and also realize that you probably have 1 or 2 whether you know it or not. These are not red or blue facts. This is green data. It’s not energy-efficient green. I mean green as in money. Let’s get back to our topic that doesn’t care anything about politics. It’s neutral. Inflation. Inflation means that your purchasing power has decreased. It’s going to require more money to buy the same goods and services now than it did before.

One formula for inflation to help you understand it is that it’s not a huge deal if we’re staying where we want to be because they like it at 2% or 3% because wages typically should go up at about that pattern as well. In 2021, with the pandemic and us trying to come out of this whole mess, most people’s wages didn’t go up at that 2% to 3%. Inflation has gone up to 6.8% so now we got a wide gap. Hopefully, in a post-pandemic world getting back to normal, we should see wages rise like they normally do. That should be the silver lining. That means that hopefully, this inflation won’t last too long.

Here’s another thought. This is a very interesting way to look at inflation so you’re not just freaking out about headlines. We’re at 6.8% in November so if we hit 7% in December or early 2022, a 7% increase in the prices of Oreos sucks. A 60% year-over-year increase in the cost of fuel oil, if that happens. You’re trying to keep your house all warm and toasty. That might freak you out a little bit but here’s one last reason to panic.

Prices largely went up from 2020 to 2021 but some prices dropped in the same months from 2019 to 2020 during the beginning of the pandemic. Things went up and the numbers and all the percentages show everything is going up but that’s because we were getting back to normal and it’s going to stabilize when we settle in. What does that mean? Gas prices for your car have risen 49.6% over the past twelve months but the previous twelve months during the pandemic, they fell 18%. The fuel oil prices that are up 59.1% in 2021 fell 28.2% the year before.

In short, given the lower numbers from 2019 and 2020 in the pandemic, the 2021 numbers look much higher than they actually are because it was catching up from all the stuff that dropped so far. That doesn’t mean that inflation is not happening but it does mean that the numbers might not be as bad as they seem when you just look at the 2021 risings and you look at those in isolation.

How Inflation Affects Buying Your First Home

All this inflation talk got very interesting when the Chairman of the Federal Reserve, Jerome Powell, said a bunch of stuff. He talked about tapering the government bond purchases, mortgage bundled buys and 500 pages of stuff that I read and understood about 50% of it. A whole bunch of it is gobbledygook. I went to 100 trusted resources to help clarify it for me. I can’t say clarify it for me. How is that ironic? I’m not going to bore you with everything about it. Let me give you the highlights and, most importantly, how does this affect buying your first home?

As you’re going to hear it referred to, the Fed is mostly responsible for two big things in our economy, employment and inflation. Inflation is the bigger issue now. Here’s what happened in November and what the Fed said. The Chairman of the Fed, Jerome Powell, clearly signaled that the Federal Reserve’s loose monetary policies are coming to an end. They have done something called quantitative easing, buying mortgage-backed securities and they are going to taper that in 2021.

HBH 67 | High Inflation Home Buying
High Inflation Home Buying: Don’t let the headlines fool you out. There’s always going to be freaky headlines.

What that means for you, if you didn’t understand anything in that sentence is we’re going to see moderately higher mortgage rate increases. You don’t have to understand what that means. You have to know the end result I told you. That’s good advice for you and your partner. When your partner asks you something ridiculous, don’t try and figure out what they are talking about or why they are asking for it. Realize the end result and go with it.

What was said in these November meetings by the Federal Reserve officials was that the central bank would not hesitate to take appropriate actions to address inflation pressures that posed risks to the economy. The other big thing that Jerome Powell mentioned was that it freaked out a lot of people. He surprised everyone. He said that they are talking about tightening credit for consumers and businesses. That’s what they call short-term lending because of inflation. I know you don’t understand that but go back to the partner analogy. Wait for the end result.

It’s another sign for you as a home buyer that if you’re close, early in 2022 could be the time to get things rocking because changes in short-term lending regulations will, in turn, bump up mortgage interest rates. Those are long-term loans but they will be affected by the short-term loan market. It’s 200, 300 or 400 pages about tapering and monthly government bond purchases and timelines of what they plan to do. If you fell asleep reading all of that stuff, I hope you at least got the wrap-up and the most important parts about it.

What Do We Do Now?

I’m going to give you an inspirational quote from Ted Lasso to wake you up. Ted Lasso says this. “I have been hearing this phrase you all got over here that I’m not too crazy about, ‘It’s the hope that kills you.’ Do you all know that? I disagree. It’s the lack of hope that comes and gets you. I believe in hope. I believe in belief.” Did you wake up? That was some inspirational stuff.

Inflation didn’t raise the housing prices. That’s a big one. You got to understand housing prices went up way before inflation. What do we do now? The prices have gone up and now you’re looking to buy a house. Now, you have to deal with prices that have gone up and this brand-new stinking inflation. The first thing I want to tell you is you got to know this stuff happens all the time and people still sell houses. First-time buyers still buy houses.

There was a time when interest rates were at 18% and people still bought homes. Years ago, the prices dropped 35% in a week. I was selling houses and people still bought homes. It’s possible. Don’t let the headlines freak you out. There are always going to be freaky headlines. Here are some things to help you out. This is a post-game analysis from the financial pros looking back at 2021 and looking ahead for 2022.

A real estate database reported this. “Rising prices on everything from gas to groceries may be motivating more people to buy homes now. If high inflation persists, a home mortgage could seem a lot less expensive in just a few years.” It’s true. Another analysis that came out was that mortgage rates remain low right now at the end of 2021 and the beginning of 2022 but experts predict they are going to rise anywhere from 3.4% to 3.99%.

Kate Wood, a Home and Mortgage Expert at NerdWallet, one of my favorite places, says that we may see a long-lasting upward trend in mortgage rates. Greg McBride, the Chief Financial Analyst at Bankrate, notes that come 2022 the general trend is going to be towards higher mortgage interest rates. It’s still an extremely competitive market but how are things going? Are they as frenetic as they were at the beginning of 2021?

Home prices rose roughly 20% in 2020. Most experts think that it’s going to continue to rise but at a slower pace. Remember, that’s a slow pace compared to lightning fast. Slow gains are still gains so if you can, jump on it. Here is a great article I found. “Stop trying to time the market looking for the perfect time to buy, instead focus on your personal circumstances.” Fannie Mae’s Deputy Chief Economist is Mark Palim. He said, “Timing mortgage rates and the housing market is hard.” Instead, he recommends that buyers look at their own wants and needs.

[bctt tweet=”Stop trying to time the market looking for the perfect time to buy. Instead, focus on your personal circumstances. ” via=”no”]

Mark said this, “They should focus on personal life circumstances and how long they think they are going to be in the area. If you have location stability and plan to be in the home for five years or more, buying instead of renting likely makes the most sense but understand what you can truly afford and don’t get caught up in the real estate frenzy.”

I’m here for you. Nobody can predict what is going to happen but we can get a good idea and forecast a little bit by using historical data and trends. I don’t know a lot about a lot of things but my goober lifestyle choice has put me here as the advocate for the people that I saw getting screwed, you, first-time home buyers.

My exciting life, thrilling my wife in bed every night, reading all this crap, it’s the one thing I know a lot about because you deserve to know what is up. Rents have gone up stupid since the ’80s. They went up before that but in the ’80s, that chart took off and I don’t see that stopping. If you didn’t buy in 2021, you missed a mad appreciation in a home. History has proven that renting can be way less productive for your finances than owning would be no matter where we are in the market growth.

The people smarter than me see this growth to still go on for a few more years. They also see rates and prices going up in 2022. If you’re ready, early in 2022 is the best time to make your move. Don’t tell me that you’re still in your lease until October so you’re waiting until then. Read episode 36. The couple of thousand dollars you’re going to spend to break your lease is going to be peanuts compared to the extra cost you’re going to get as the home prices go up and your mortgage rate goes from 3.2% to 3.8%. I’m only going to tell you that once, episode 36. Don’t tell me about your lease.

I love it. I’m with you. I want you to save every single dime. Breaking the lease might seem like a lot of money but it’s peanuts. You only get to time the purchase of your first home once. If you read the show, I was telling you in 2019 and 2020 that you should do it. I told you all through 2021 that you should do it. If you couldn’t do it, that’s no big deal. The universe didn’t drop you in there but now if you’re waiting because of one little expense that’s going to happen down the line, it’s going to cost you way more.

This topic is inflation. If you’re freaking out about inflation, I love you but stop. Economies change. Recessions happen. The stock market is going to crash soon. People still will be better off owning instead of renting. The data says so since 1900. When you started this show, this sentence might not have made sense to you but I hope it does now. Owning real property is an asset that increases. It’s your best hedge against inflation, consumer products and prices rising.

There’s going to be good news in 2022. There are going to be more homes for sale, more inventories, as we like to call it. There are probably fewer bidding wars and multiple offer situations. You don’t have to worry about scary headlines because the show is bumping. I’m going to keep on doing this all throughout 2022 and give you current updates so you know exactly what is going on. If you found value in this or any other episode, share it with a friend. Text it to them. It’s simple. All I want for Christmas, Hanukkah and Kwanzaa is for you to share the show. A five-star review and writing a nice review will be helpful too.

If you have any questions, I will help you out. Go to DavidSidoni.com or HowToBuyAHome.com. Fill out the contact form and I’m going to answer you. I have been writing this episode all day long and it took me all day, not because I don’t know this stuff. I have been researching this forever and had all my notes. I stopped a dozen times a day to answer questions of people who hit me up. They either hit me up on the website or they sent me a DM through Instagram. If you want to find me on Instagram, it’s @DavidSidoni.

This will be coming out at the end of the year but if you go back to December 14th, you’ll find a sweet video of me dancing in an ugly Christmas sweater. I’m such a fool with anything to get the word out and let people know there’s a better way to do this. You and your questions come first even before me writing the episode. That’s my jam.

Do you know why? It’s because it sucks that you don’t have a lot of places to get the right information to help you and help this whole thing be less confusing. I know what it is and I know it can be but it sucks that nobody is screaming from the mountain tops, saying, “You pay way too much on rent. Stop spending money on your rent.” I’ll do anything to get you to figure out the one thing I tell you every episode. You can do this.

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This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!


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