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First off, what is inflation? Have you ever noticed that the price of the same thing you bought last year has gone up this year? Maybe your groceries were $105 this week, whereas last year at the same time, they were $100 dollars. That is inflation.

So what’s going on right now that we are talking about inflation? To put it into perspective, inflation rates right now are at 7.5 percent, the highest they have been since February of 1982, and they have been surging for several months now.

What does this have to do with real estate? Well, for one, the general concern right now is that interest rates may have to rise steeply to combat that surging inflation. Today, interest rates rose again and now sit at about 4.23% for a fixed 30-year mortgage, up from 4.042%  yesterday. Just a couple of weeks ago, it was 3.68%. However, buyers should not panic just yet. These interest rates are still historically low!

Second, the rising interest rates should moderate price growth in the DFW area for 2022. We should see more inventory because some buyers will begin to pull out of the market because of higher interest rates. We do not expect to see a price correction in 2022 but the consensus is that we may see some type of correction in 2023 in DFW but are mostly insulated from a large correction because of the relocations of jobs and people from other parts of the country to our area.

What’s contributing to this rise in inflation and subsequently, interest rates? Well, multiple factors. Some of them include high energy costs, labor shortages, supply chain disruptions and strong demand. Think about the cost of used vehicles right now – or lumber prices.  

During the pandemic, people stayed home and were spending less and ordering less of certain items. So what happened? Business owners upped those prices to recoup what they were losing from doing a lower volume of business. So the price of certain goods increased. Supply chains were also disrupted, due to sickness and lockdowns. Also, when there is a shortage of people to work, wages raise. So then people are paying truck drivers more and workers more, so then those companies have to increase prices to offset those factors.

Part of the mission given to the Federal Reserve by Congress is to keep prices stable–that is, to keep prices from rising or falling too quickly. The “Fed” basically seeks to control inflation by influencing the interest rates. When inflation gets too high, the Fed typically will raise interest rates to slow the economy and bring inflation down.

Inflation is affecting both renters and buyers right now. For buyers, it’s because multiple constraints have pushed up housing prices – such as the rising costs of materials like lumber. For renters, they are seeing increases as people return to cities.

Last year, housing prices in the area rose in value by an average of 20+ percent. Rent prices rose as well, as much as 15 to 18 percent throughout much of the Dallas-Fort Worth Metroplex.

In the table below, you can check out the National Association of Realtor’s data on existing single-family home sales, and how current mortgage rates compare to where they were over the past few years, along with interest rates and national prices for each year (National Association of Realtors).

Information Chart Used in Blog 'EXPLAINED: Inflation, Interest Rates & The Housing Market"

Current interest rates are the highest they have been since the onset of the pandemic, which is also back to 2019 rates and which still was not a bad year for mortgage rates.

If you’re shopping for a home, these interest rates can cut into your purchasing power. For one, make sure you understand what your monthly payment allotment is and not just your total loan amount when looking at your pre-approval letter.

Also, lock in your interest rate now if possible. A mortgage rate lock guarantees you a specific interest rate for a certain period of time – usually 30 days, but possibly up to 60 days. You may have to pay a fee to do this, but this way, you are getting the lowest rate as rates are expected to continue to rise daily and weekly as they have been doing lately. If your closing day is more than 30 days away, you may want to consider a floating rate. This fee is potentially even higher, but it lets you lock down a secure lower rate on your loan if rates do happen to fall before you close on your mortgage.

So if you are looking to buy right now, what’s our advice? Don’t let this concern you too much or try to place an interest rate guessing game. Rates are still at historical lows, so don’t be discouraged! Yes, there may be a slight correction in 2023, but interest rates will likely be higher offsetting a correction.

As always, we are here to serve you however we can. At M&D, we offer leading residential, commercial and property management services! So if we can be of any help to you as you seek to sell, purchase or lease a property, please let us know. We are also always happy to answer any questions you have on the market!

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