The cost of a home is one of the biggest investments you’ll make in your life. It’s important to have a budget in place so that you can stick to it, even when the economy is in flux. One factor that can significantly impact your homebuying budget is inflation. Inflation affects the cost of goods and services, and housing is no exception. Here’s a financial planning guide to help you understand how inflation affects your homebuying budget and what you can do to stay on top of it.
What Is Inflation?
Inflation is an increase in prices over time. When the cost of goods and services goes up, we call it inflation. The rate of inflation is measured by the Consumer Price Index (CPI). The CPI measures changes in the prices of goods and services over time, allowing us to compare how much things cost now compared to before.
How Does Inflation Affect Homebuying?
When inflation increases, so do home prices. This means that your homebuying budget will need to increase as well in order for you to purchase a home at today’s market value. As an example, say you had a budget of $200,000 for a new house five years ago. If there was an average rate of inflation of 2% per year during those five years, then today’s equivalent house would now cost around $217,000 – almost 10% more than before!
How Can You Stay On Top Of Your Homebuying Budget With Inflation?
The best way to stay on top of your budget with inflation is by saving more money each month than what you think you need for your down payment and closing costs. This way, if prices go up due to inflation while you’re saving for a house, then you’ll still have enough funds to cover the difference without having to adjust your budget too much (or at all). Additionally, it’s important that when building your savings plan for buying a house, you factor in expected increases in interest rates and taxes as well as any potential future repairs or upgrades that may need to be done after purchasing the house itself.
It’s also important that when shopping around for mortgages that you look at loans with adjustable-rate mortgages (ARM) or hybrid ARM loans instead of fixed-rate mortgages (FRM). ARMs are typically cheaper upfront but come with higher interest rates over time due to their variable nature; however this provides some protection against fluctuations in interest rates due to inflation since they adjust with changes in rates over time. FRMs offer more stability since their interest rates remain constant throughout the loan period but are usually more expensive upfront than ARMs due to their consistency over time which makes them less desirable when dealing with potential increases in inflation levels (which could end up costing more money later on).
Finally, it’s important that before making any large financial decisions like purchasing a house or taking out a loan that you speak with an experienced financial advisor who can help guide you through the process and provide advice tailored specifically for your situation and goals – whether it be saving money or investing wisely – so that no matter what happens with changes in economic conditions or inflation levels, you can rest easy knowing that your finances are taken care of.