Slightly higher inflation looks like it’s here for a while. So, what does this mean for homeowners and homebuyers?

First, per John Burns Real Estate Consulting, inflation is great for homeowners. Long-term, it creates upward pressure on the value of your home since the costs to build a comparable home are increasing. It also creates upward pressure on incomes. So your monthly mortgage will eventually take a smaller portion of your salary.

But what about buying a home? Now we need to consider timing. If inflation is consistent, that means that costs are continuing to rise. So the costs to build (and therefore buy) a home today will be less than the costs to build (and buy) that exact same home a year from now.

But the biggest factor right now is the mortgage rate. Inflation will eventually impact the interest rates we pay on our home loans. Today, lending rates are still near historic lows.

So, since construction costs are increasing and borrowing costs will be increasing, that makes today the best time in the near-future to consider purchasing a home.

Once you decide to buy a new home you get to make all kinds of fun decisions – Which neighborhood? One story or two? Quartz or granite counter tops? Painted or stained cabinets? Shiplap? The list goes on and on.

One decision that’s not as fun (and very unlikely to be inspired by HGTV binges) is who to select as a mortgage lender.

There are countless financial institutions who want to lend you money for your next home purchase, and it’s up to you to do your research. Check with friends, family, and existing bank relationships.

But as part of your research, you should also ask your home builder who their preferred lenders are.

A builder’s preferred lender is simply that – an institution that your builder prefers to work with. This is a lending team that your builder trusts to understand the intricacies of new home construction in your area. This is a group that already has a relationship with your builder, has financed other projects, and has already cleared the hurdles your loan is likely to face.

What this leads to is closing your home on time. This means you get the keys and can move in when you plan to!

For instance, if your appraisal is delayed your closing can get pushed back a week or more. A preferred lender will have experience with your builder; your city, county, and neighborhood; local appraisers; and will understand any unusual wrinkles you may face.

Also, a preferred lender often offers special incentives to home buyers. For instance, all Riverwood Homes preferred lenders offer a 1% credit to our buyers!

So do your homework, ask around, and collect quotes. But be sure you ask about a builder’s preferred lender as part of this research.

Riverwood Homes has two great lending partners we trust.

In Idaho, it’s Mark Onnen with Homebridge.

In Washington and Oregon, contact Keith Hobart with Peak Mortgage.

On the May 19, 2021 New Home Insights Podcast presented by John Burns Real Estate Consulting, the host interviewed industry expert Barry Habib of MBS Highway.

In the podcast, Barry presents a different way of considering home affordability. His thoughts are summarized by the Real Estate Consulting website:

• You might see headlines like, “Home prices have increased 10% while incomes have increased by only 4%. Therefore, this market is becoming increasingly unaffordable.” This is a flawed interpretation.
• A 10% increase in housing costs does not require a 10% increase in income to maintain the same level of affordability. A 10% increase in a housing payment of $1,000 is $100. Assuming an existing income level of $5,000, an extra $100 needed for the increase in payment is only a 2% increase in income.

So even though median home prices have increased 10%, since hourly incomes have risen 4% and weekly incomes have risen 7%, those homes are actually more affordable than they have been in the past.

Inflation rates have recently gotten a lot of attention. A 4.2% inflation rate reported in April will definitely generate some discussion. And those discussions have raised concerns about the health of our overall economy and home affordability, specifically.

What does that 4.2% number really mean, though? If we look at the table below provided by USInflationCalulator.com, we can see the inflation rate by calendar year back to 2000. In 2017, the twelve-month inflation rate was 2.1%. In 2018 it was 1.9%. 2019 was 2.3%. and 2020 was 1.4%.

So, a 4.2% number means that we, as consumers, paid about 4.2% more for certain goods in April 2021 than we did for those same goods in May of 2020. That 4.2% number includes Food (which went up 2.4% over the past 12 months), Energy (which increased 25.1%), and essentially everything else (which are services and commodities that went up 3.0%).

Did you notice that big increase in Energy? That’s what’s driving the reported inflation number. Since inflation is essentially driven by increased economic activity, that must mean that we’re buying more energy in April 2021 than we did in May 2020.

Energy primarily means gasoline, which is almost 50% higher over the past year. That number makes sense to all of us. We weren’t travelling in May of 2020, since we were all in the middle of pandemic lockdowns. OPEC slashed production and refineries shut down. Now, in April of 2021 we can travel again, many are commuting back to the office and visiting with families, OPEC hasn’t increased production to meet demand, Texas refineries slowed production due to an historically harsh winter, over a dozen US refineries were shuttered in 2020 due to the pandemic, and now many of us have stimulus checks in our pockets which we’re using to catch up on missed vacations.

Since this inflation measurement is compared to last year, we’re really looking at an artificially low base-line number. Yes, we’d still be dealing with that Texas winter and production problems will need to be resolved before prices fall. But we’re comparing current spending to last year when we were all sitting at home watching Tiger King.

It’ll take a few more months to work through these challenges, but the Federal Reserve still expects inflation for the year to be about 2.2%. That’s slightly above the 1.8% historic average but a far cry from April’s 4.2%.

What does this mean for housing?

Firstly, housing has intrinsic value. Whether we own our home, rent, or live in an Airstream we all need a place to live. Even in the aftermath of the Great Recession people were still buying and selling houses.

Secondly, unless sustained inflation drives up mortgage lending rates, we’ll still see strong demand for homes. However, we’re all familiar with price increases for lumber, drywall, siding, copper, and steel. If we also consider the chance that mortgage interest rates could rise in the next few years, it creates pressure to buy now. We can get more for our money now versus later.

As hot as housing is right now, we’re not seeing any signs that this market will cool off anytime soon. Interest rates are still historically low. Housing demand is strong across the nation. By our own internal metrics, the Boise metro area has 22 days of housing supply on the market. The Tri-Cities area has 12 days of supply. Which means prices will continue to increase as motivated buyers compete for limited inventory.

Construction materials costs are expected to rise through the end of 2021. Inflation could be a concern for the next few months. Mortgage rates are still low. Some industry experts don’t expect housing supply to meet demand until the end of the 2020’s. Unless you’re willing to sit out of the housing market and wait for several years, it’s probably better to buy sooner rather than later.

The Fiscal Times recently published an article about ten real estate trends coming up in 2016. Some highlights from the this article include:

• Home prices are expected to continue to increase slowly, 3.5% throughout 2016
• Interest rates should slowly inch up through the year as well. However, according to the Mortgage Bankers Association, the 30-year mortgage rate shouldn't exceed 4.5% - still a very low rate compared to historical numbers.
• It will remain cheaper to buy than to rent. Buying is cheaper than renting in every one of the country's 100 largest metro areas and that disparity will likely grow accoring to Rent.com.

So what does that mean for homeowners and renters in Boise, Idaho; Tri-Cities, Washington; and Boardman, Oregon? It means that 2016 could be a great time for you to sell your home or leave the rental market and purchase a move-in-ready home or begin thinking about your to-be-built house!

The Oregonian newspaper recently published an article about Boardman, Oregon and its shortage of housing. The article emphasizes how strong the employment market is, particulary with all the jobs that are supplied by the nearby Port of Morrow. Yet, the housing supply at 900 units is grossly inadequate for the community. 

We are attempting to supply some of the needed housing with our two communities - Tuscany and Chaparral Park. While we cannot build houses that are affordable to everyone, we are trying to build them as econonomically as possible. At the same time, we are attempting to provide the quality and size that distinguish our homes from what is currently available in Boardman. So far the market seems to agree with us, as both of our finished homes have sold before the completion of construction. We hope this trend continues and that we can grow along with Boardman and be an integral part of improving the community and making it a place where people want to live.  

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The Eastern Oregonian newspaper recently published an article about the shortage of housing in Boardman, Oregon. Because of this housing shortage, an estimated 68% of workers at the nearby Port of Marrow commute to their jobs, many from 25 or more miles away.

We at Riverwood Homes are trying to meet the housing needs in Boardman and to supply the community with a variety of housing options—high quality housing and moderately priced townhouses at our Tuscany and Chaparral Park subdivisions.

As more and more homebuyers decide to make Boardman their home, retail, recreation, and other amenities are sure to follow.