What is inflation?

We are happy to introduce a series we have put together to address some common questions we are receiving from current and past clients alike about the market and what is happening! There is a lot of uncertainty with the markets, so we decided to share those questions and our answers.

Below are the questions we have been receiving. We will be answering one question each week. As always, we appreciate any feedback from you and would certainly be happy to discuss with you should you want to reach out to us directly.   If you happen to know anyone that can benefit from speaking with us, we are always happy to help!

1. What is inflation?  What can I personally do to protect myself?

2. Is it still a good time to buy a house?

3. Is it still a good time to refinance a house?

4. Where do you think the interest rates will be in the next 6-12 months?

Let’s start with the first question.  What is inflation?  The definition of inflation is a general increase in prices and fall in the purchasing value of money.  The common examples that we are seeing around us affect us all.  Groceries, gasoline, basic goods we buy for our homes.  This also extends to things such as gas to heat your home and electric to run your appliances.  The lower interest rates that we have seen over the past couple of years have also stimulated the economy and contributed to the higher inflation that we see nowadays.  As a disclaimer, I am not an economist by any means.  I simply read and study things so that I can understand what is happening around me.  Of course, it helps to explain to those I encounter as well!  What can you do to personally protect yourself?

In my opinion, the first thing that anyone should do is sit down and really examine their finances over the last 3-months.  Do you keep a family budget?  Are you saving money when you can?  Are you still spending money as you did last year or the years before?  Remember that the cost of goods are increasing.  With that being said, having a grip on what you are spending and cutting out certain things that you don’t need might help. 

One last thing before moving on is this - do you have a financial advisor?  When was the last time that you had a conversation about your investment portfolio with your financial advisor?  It would be wise to give them a call and sit down with them.  Discuss what you currently have invested and make sure that you are doing the right things with your portfolio. 

Next up, Is it still a good time to buy a house? The answer is yes!  Look, if you didn’t buy a house in the last couple of years with the lower interest rates, it’s ok.  Maybe you weren’t ready to buy a house.  Maybe you had some credit issues that you were working to fix and couldn’t buy.  It could also be that you tried to buy a house, made several offers, and didn’t get a house during the time that you were really looking.  Historically speaking, the interest rates are still really low.  The question that I always ask is, “What payment amount would you be comfortable with making monthly?”  From there, I am able to find what works and make sure that we get someone in the right situation overall.

For the third question on our list, is it still a good time to refinance? It depends.  If someone is looking for a lower interest rate with either a lower monthly payment or shorter term than what they have currently, it likely isn’t the best time to refinance.  Here are some examples that might still work to refinance your home -

1. Removing someone from the current loan (i.e. breakup, divorce, court ordered, etc.)

2. Cash out refinance – debt consolidation – consolidating some debts that you have occurred and roll them into the mortgage (i.e. credit cards, other high interest debts)

3.  Cash out refinance – home improvement – using equity in the house to do some home improvements.

Last question - where do you think the interest rates will be in the next 6-12 months?  That is a loaded question!  Just kidding, but I would bet that interest rates will likely continue to go up for a number of reasons.  The Fed (Federal Reserve; central bank system of the U.S.) is likely to continue raising rates until the end of the year.  Inflation will likely continue for the foreseeable future but will eventually cool off at some time like it always does.  The Fed is trying to raise rates quickly to slow down inflation.  My general response to how rates are looking currently is to expect a 5% or higher with the market currently when considering a longer term mortgage.  Judging by the way things are going currently, I would say it is best to check back with me in a month and we can have another conversation about rates in general.

If you have any questions, comments, or concerns, please don’t hesitate to reach out.