Inflation is Rising – Should I Still Buy a Home?

Inflation is Rising – Should I Still Buy a Home?

  • Lisa Sinclair
  • 09/27/22

World events and government spending has led to soaring inflation. The Federal Reserve has only one tool in its arsenal to curb and reduce this trend – raising interest rates. While contemporary home buyers are accustomed to interest rates in the 2-4%, older homeowners remember being excited to get one as low as 8%.

Here are some important notes on the current market here in Knoxville:

  • Higher-than-expected inflation continues to plague U.S. markets, according to the consumer-price-index (CPI) data for August. Housing costs, which account for one-third of overall CPI, rose 0.7% from July to August.
  • Knoxville ranked as one of the top migration destinations in the United States, according to's Q2 2022 migration report.
  • Home sales in the Knoxville Area increased 4.8% in August to a seasonally adjusted annualized rate of 21,232 but sales were down 5.3% from a year ago.
  • After months of robust gains, Knoxville's rental market is beginning to slow down with nearly every measure of annual rent growth declining from the previous month. Even so, effective rents in the Knoxville MSA were up 19% year-over-year in August, outpacing the annual rent growth of 10.5% nationally.

As yet, we have no indication such a drastic increase is necessary, home mortgage interest rates are creeping up and potential home buyers may be asking if they should still try to buy a home. 

One of the first things to consider is affordability. A higher interest rate will impact the amount of the loan each buyer can qualify for, potentially reducing their spending power. Yet, home prices are also beginning to soften, so it’s possible that this correction will reduce any possible impact from rising rates.

Secondly, home ownership has been a strong hedge against inflation historically. Buying a home locks in the cost of the largest budgetary portion of your expenses – your housing cost. As the cost of living continues to increase, rents will also rise, continuing to add pressure to an already strained household budget.

What you need to know: Higher home prices and rising mortgage rates are impacting housing affordability in a substantial way, a dynamic that's pushed some buyers out of the market and created downward pressure on home sales. As of now, declining affordability is the largest driver of housing moderation.

Finally, things change. Recessions do not last, home prices eventually rise, and home mortgages can be refinanced. Most homeowners move every 5-7 years and so potential home buyers should plan for this timeframe when making decisions. Is this still the right time to buy a home? Inflation does have an effect, but it does not necessarily mean that one needs to hold off on a good home purchase

Although consumers should expect continued moderation in the housing market, the outlook for home prices remains relatively strong. While home buying activity is certainly slowing and homes are staying on the market longer, much of the growth in inventory is being driven by a slow down in new listings – as sellers have become more reluctant to list their homes. There's still a dearth of inventory and no signs that will change appreciably in the near term, in which case the market is likely to remain relatively competitive and provide a further boost to home prices.
If you are looking to purchase a home in Knoxville now may be a great time even with inflation and rising interest rates.  Likewise, if you are looking to sell with the limited inventory and buyers on the fence it is also still a favorable time for sellers.  As your Knoxville Real Estate Professional I'm here to provide you the tools and information you need to make an informed decision.  Please contact me today if you'd like a complimentary home valuation report or if you'd like information on buying a new home in one of our desirable communities West Knoxville.  


Work With Lisa

Lisa Sinclair is a premier real estate agent with a commitment to excellence and specializes in home sales in West Knoxville and the surrounding areas. Whether representing buyers or sellers, she helps her clients achieve their long-term real estate goals through her local market knowledge and professionalism, making her a successful and trusted agent throughout the greater Knoxville area.