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Inflation, home prices, renovation costs oh my!


Let’s face it. Closing the economy for months while simultaneously printing trillions of dollars to “save” us all from economic collapse has resulted in higher prices for just about everything, or inflation if you will. I know that is a word no one wants to hear but if you’ve tried to buy a house, gasoline, a car, or renovate just about anything lately, you know exactly what I’m talking about.

Home prices on average are up 17% across the country. In some areas the real number is 30%+ which is shocking. In other words, if you are not earning an average of 17% more than you were pre-pandemic, your home costs have gone way up. And that’s just one side of the story, which affects those who are in the market to buy.

Despite significant drops in framing lumber prices in recent months, overall building material prices have increased 19.4% during the past 12 months and 13% year to date, according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics. Building materials (i.e., inputs to residential construction less food and energy) prices have declined just twice since December 2019. What does that all mean?

The cost to buy an existing or new home is up. The costs to fix your current home has never been higher, too. Because of all of this it is inevitable mortgage interest rates will rise as the government grapples with inflation. It’s realistically the only lever they can pull while they wind down post-pandemic spending. It seems highly improbable that the Fed will sit back and allow rates to remain in the 3% range while the economy struggles to keep prices steady for everyday goods and services.

If you are thinking about buying your “forever” home now may be the best time to lock in that low rate before we see a long period of rising rates. Then again, I’ve been saying that since 2018 so we’ll see what happens. It is my belief this period of inflation will finally convince the Fed to increase the mortgage rates and allow the markets to cool off. If not, the markets could be extremely unpredictable in the coming year.

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