What is this inflation all about? It’s hard enough to try and buy your first home in this ever increasingly unaffordable housing market, and now you have to deal with inflation? In this episode, David breaks down how inflation works, where it could head, and how it will affect you and your plans to dump your rent someday. While everything is going up, especially in rents, you should equip yourself with the knowledge to combat the rising inflation affecting home buyers. Tune in to this episode as David Sidoni ventures into the inflation sensation that sweeps the nation!
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Inflation Affecting First Time Home Buyers
What You Can Do To Combat Rising Inflation When Looking To Buy Your First Home
Thanks for joining. It’s good to know a nerd. That’s me, your real estate nerd. In this episode, you are going to hear my inner nerd get a little testy about everybody talking about this whole inflation thing. Even though I nerded it out about it, I put it on an episode in December of 2021. I bet you know about inflation now. You can’t get away from this topic, so let’s revisit it, and we are going to find out what you can do about it. The inflation sensation that’s sweeping the nation. Let’s do this.
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I am your personal nerd information machine using all my powers of dork research and a lack of an exciting social life, bringing you all the data and analysis that you need to eliminate your worthless rent to help you live a more prosperous and secure financial future and to protect you from the dangers of an unpredictable and constantly changing economy. We are going to focus again on that last part. I say again because I told you all about this in December, the changing economy apart.
Have you noticed a change in that little thing they like to call inflation? Do you know what sucks about being your super nerd spewing into this microphone since 2019, giving you all the mad math facts and market data that you can handle? I will tell you what sucks about it. It’s that there’s a cyclical factor to all markets. To help you prepare for what’s coming, there’s no way that I cannot sound like a crotchety old Boomer. Once again, I am not a Boomer, Gen X baby.
I get it. You 20 and 30-year-olds think that I sound sus like I’ve got no clue what’s going on since my old ass had it easier than everyone else because things have changed. You don’t know how it works. Get ready, homies. It’s truth bomb time. I hate to be the bearer of bad news but if you were born in 1990 and went to college, and graduated in 2012, you got a job and have been adulting since 2012. You don’t know Jack s*** about market cycles. Truth bomb.
Homies, remember I love you. Truth bombs are here to help you. I quit my job, quit my broker, and started this show so I could help you folks but sometimes, my inner angry nerd comes out to make sure that you can understand all the global data and that you can be prepared for it. Remember, gang, Uncle Dave wants to protect you so you can thrive and prosper. Now that the legal disclaimer is done, you can’t sue me for destroying your mental well-being.
Homies, you have been living in an adulting fantasy world. In an economy that has only been going up and up for over a decade since 2012, this is not normal. I can’t help when you were born and became an adult but I can tell you that many of you readers out there, as an adult, you’ve never understood what it’s like to be in a normal economy. You’ve never felt a stock market big drop. You’ve never seen a weak economy. You’ve never lived with a normal home loan interest rate or inflation rate.
Since 2012, you’ve had a strong economy and jobs market for ten years, so strong that a global pandemic barely put a blip into the overall economic conditions. It only happened for a few months. You’ve only known a stock market that never crashes and barely corrects, only going up and up for over a decade. You have only been a renter and watched housing prices in a non-stop increasing market for those same ten years, which usually those cycles are 4 to 5 years up and 4 to 5 years down.
Prices In A Non-Stop Increasing Market.
You’ve also only known stupid low mortgage interest rates as an adult. Do you know that the average interest rate on home loans has been 7.77% since 1971? When it comes to our topic, inflation has been insanely low. It was so low that you’ve never even heard about it. Did you know that inflation is low that it has essentially been giving you a pay raise every single year? More on that later. What you need to know and understand is that for the last 100 years, the average inflation rate has been 3.5%.
From 2010 to 2020, that rate was only 1.75% for the entire decade. The entire decade that you have been adulting. To all my millennials and Gen Z-ers out there who want to say the Boomers ruined it for you. The truth is they Rob Peter to pay Paul. You’ve had it good for the last ten years. If you weren’t able to take advantage of that before during these glory days, then let’s figure out how to protect you from what’s coming because it’s about to change.
One of the big ways it’s going to change is the recession. I talked to you folks about that originally back in 2019 but we want to make sure that we get a refresher on that, so I want to remind you again but that’s going to be the next episode. Now, we are going to talk about inflation. Back at the end of 2021, I gave you that first inflation episode because we first started to see back at the end of 2021 that inflation was starting to come on the rise.
This was an effort to use all of my real estate economic nerdy powers to protect you. Can I ask you a question? You might not like this question, gang. Were you in a position to buy at the end of 2021, read to that episode, and all the rest of them but you still remain a renter now? If you answered yes and you were in a position to buy, what happened? Mortgage rates have doubled, and inflation is now at 8.6%. Gang, help me help you. I will try to tell you about this.
That’s where you are at. There’s not much more that I can do for you except say, “Reach out now.” You missed that little jump but you’ve still got a chance to get in. I’m a super nerd who could educate and help you flag your unicorn team in your town but I can’t make you engage. I get it. You had a lease that wasn’t up until August. What you wanted to do is you want to make sure that you didn’t break your lease because you’d have to pay $2,000 to break your lease. That would have been a stupid waste of money.
Big picture, people. Think of it this way, the home that you could have bought in 2021 if you had to break your lease and pay that $2,000, that home that you bought it now costs 10% to 20% more than it did in 2021. That’s on an average $400,000 house, anywhere from $40,000 to $80,000. I’m not done. Your mortgage payment now, because interest rates have gone up two points, is going to be a thousand dollars more a month. On a 30-year fixed loan, $1,000 a month. That’s $360,000, so aren’t you super glad you saved that $2,000 and didn’t break your lease?
The angry nerd in me, there he is. I told you he was coming for those of you who were ready then and are possibly still ready now. It is time to dump your rent. Stop waiting. Go to HowToBuyAHome.com and reach out for some guidance on your next steps. Don’t wait. Don’t miss out. I’m not selling you a How To Buy a Home seminar. I don’t want to be your realtor to make a commission. I don’t charge anybody a monthly fee to be part of my insider tips group. You are reading this for free, aren’t you? I don’t have a Patreon.
For the love of God and all things, holy or unholy, if that’s what you worship, I don’t judge. Come take advantage of this nerd and my passion project. I’m trying to start a revolution so you can take advantage of the opportunities that this market is offering and stop making your landlord rich. Whether you are ready to buy now or not ready to buy now, let’s discuss inflation. Again, I want to help prepare you to take advantage the best that you can because we have a changing economic landscape coming. If not, already right smack dab in the middle of it.
[bctt tweet=”Save up to buy a home. Buying a home and locking in that payment can be your best shelter in the long term against inflation and any other economic turmoil.” via=”no”]
Inflation hit 9.1% in 2022. That’s big but as I record this episode in the middle of August. We did see a glimmer of hope that the July numbers came out, and it dropped back down to 8.5%. That’s even better than the 8.7% predictions that most analysts thought we were going to get to. We got down but we are still at 8.5%. The headlines for the new numbers were not good but it’s better than we thought it was going to be, getting better from bad.
To get extra nerdy and detailed into the number that I gave you earlier about how inflation has been a 3.5% for the last 100 years, here’s the way it breaks down. Since World War II, 1960 to 2021, the average inflation rate was at 3.8% per year, moving somewhere between negative 0.4% and 13.5%. In 2021, suddenly, we started to see things change. We ended the year with an inflation rate of 4.7%. The government started to get ready to prepare to move on this. That meant that they were getting ready to move the Fed interest rate.
They’ve done so here in 2022. I’m sure you’ve heard a lot about that on the news. If you haven’t, good for you. You have a life. Congratulations but thanks for joining me and now you get to read about it here. In 2022, inflation got as high as 9.1%. As I said, it dropped to 8.5%, so we are still sitting at 8.5% inflation, which is way more than the 3.5% for 100 years or 3.8% for the last 60 years.
Dr. Lisa Sturtevant, the Chief Economist for Bright MLS, and who’s not going to listen to a doctor? She said in the statement that the CPI numbers now that’s the Consumer Price Index. Along with the strong job numbers that came out at the end of July are signs that the strategy of the Federal Reserve Bank interest rate hikes could be working. She said, “The easing of our role inflation coupled with a strong labor market conditions could provide some optimism to the Federal Reserve that the rate hikes are working and that the elusive soft landing that is bringing the inflation down without sending the labor market tumbling. That is a possibility.”
That’s the numbers, and I’m sure a lot of you are sitting there going, “That’s great, Dave. I didn’t listen to that old episode 67. What the hell is inflation?” Here’s the breakdown. It’s an increase in the price of goods and services. There are a million other things people are going to tell you but that’s the basic. When economic factors shift like supply and demand changing or a change in the value of the dollar, those are some of the things that cause inflation. It costs more to buy stuff.
What can get confusing is that when stocks and houses go up and cost more, that’s not inflation. Inflation is when the price of regular old stuff, gas, and groceries when that stuff costs more, that’s inflation. There are a million different theories but one of the factors about this current inflation that a lot of people don’t realize, did you know that 80% of all of the US dollars out there that were printed, 80% of them were printed between January 2020 and now? Let that sink in a little bit.
If you are wondering what that has to do with inflation, here’s how it works with more dollars chasing the same amount of goods and services because it’s not like people made 80% more stuff in the last two years. We’ve got more dollars chasing the same amount of stuff, which means the costs go up. We’ve had the supply chain issue affecting the manufacturing and distribution costs. That cost for the consumer goes up even more. Combine that stuff along with all the dollars being printed in, we’ve got some inflation.
Again, there are multiple different definitions, calculations, and theories on what actual real inflation is. They’ve got all these different names for them. You can hear all about that in episode 67 because I did that all there but no matter what theory you buy into, there are some non-arguable facts. Gas is up 60% since 2021. We all know that. We all feel it.
The Big One.
They say groceries are only up 6% nationally but it sure feels like a lot more than that to me. There’s the big one that I’m sure many of you are all feeling. Rents are up, how much did they go up? It’s whatever the percentage equivalent is. FU, tenants. I don’t have the exact data on what that is but it’s a big percentage. Inflation means that your purchasing power has decreased.
It’s going to require more money to buy the same goods and services now than it did before. The reason you haven’t heard a lot about inflation in your fantasy economic decade is that you have been ignorantly and blissfully floating through. The reason you haven’t heard that much is that it’s not a huge deal if your wages are going up in line with or more than likely, outpacing the inflation.
What’s your pay raise per year, 3%, 4% or 5%? Reports show that amid record inflation and a labor market with two open positions for every worker, the annual salaries have been increasing by 4.8%. That’s the highest pay bump in decades for employees, and that highest bump ever is still not enough, according to many companies, to keep their employment going. That means more pay raisers are probably on the way as we get to the end of 2022. That’s going to be something that’s very important and something that you employees, laborers, and people with jobs are going to need because inflation is at 8.5%.
Let’s say they stay at the average 4.8% increase. Everyone gets excited because they got the highest increase in many years, a 4.8% increase. If you take into account that there’s an 8.5% appreciation, you received a pay cut of 3.7%. For those of you at home, that’s 8.5% minus 4.8%, and the math is 3.7%. You got to trust me on that. That’s the bummer about inflation. You’ve never had to think about it because it has been at 1.75% for the whole decade. With your salary increase that you get every single year, you should have a formula where you take into account the cost of living or inflation.
Typically, a 10% pay raise is more like a 6.5% raise when you factor in inflation which has been a 3.5% for all those years. In 2022, if you are only getting a 4.8% raise, you lost 3.7%. I understand. I already said that but guess what? It’s so important. I need to say it twice. There’s this great dude on TikTok. I should remember who he is but I forgot. Anyway, he’s one of the guys I like and had this great tip. He said, “Go to your boss if your annual pay bump is 10% or less and provide them with all this information data. Use that as your reasoning behind a higher pay increase this year.”
This is my side note on what he said. That’s a good strategy. If you are going to do it, you better do it fast because the recession is coming. If the recession hits and you are lucky enough to keep your job, they are not going to be stoked to give you a pay bump when they are going through a recession, so do it now. The job market is still hot, and they know that you might have opportunities to go out and get a higher-paying job elsewhere. Ask for that pay bump now to prepare for the recession. Remember, we are here to help you prepare.
[bctt tweet=”It is time to dump your rent for those ready to buy a home. Stop waiting, go to howtobuyahome.com, and reach out for some guidance for your next steps.” via=”no”]
That was great that I found that dude on TikTok, and he had that information. I want you to know that we’ve got historians, economists, and educators that are all over the place. Originally, there were newsletters and pamphlets that I used to research for these folks but thankfully, most of them are putting their stuff on the internet now. I’ve done the research on these people before and after I see their stuff. Sometimes, I will discover people on YouTube or TikTok but what I do is I never take one thing they say. I go and check them out, see who they are, what their history is, and most importantly, I check to see their track record.
If you go, do that research, and are looking at these people, and then you figure out that you want to trust these people or listen to me regurgitate all the trusted people that this nerd follows, then what you are going to hear is a whole lot of different views on the inflation. I’ve said this before. You can talk to leading economists, and you are going to hear exact 180 opinions on almost everything having to do with the economy. They are both smart people. It’s just, which philosophy do you want to follow?
With inflation, everyone has got an opinion and trying to talk to you. For us, the reason that we are talking about it now is that we need to understand all the government programs and the new law that got passed. What’s it going to do for future inflation? My school of thought is, if people are telling you, “This is great. Everyone is going to fix it.” why not prepare? If they say it’s going to get fixed in six months, prepare like it’s going to get fixed in a year and six months. What’s the worst that can happen? You’ve got a little extra money in your savings account.
One of the other nuggets that I found when I was researching this is a theory that large corporations are helping to drive inflation. The things that we used to do to stop inflation are probably not going to work the same because of what’s happening with these large corporations. The Boston Federal Reserve got three economists that argue in a new article that there’s a new type of inflation that we are in now. The old system of raising the Fed interest rate might not be as effective as it was in the past. They discuss something called the cost-price relationship in a concentrated economy.
What they are saying is that we have more corporate concentration, with the larger corporations acting as the main supplier of the goods and services. We’ve got less companies in each industry. When these larger corporations face higher production costs, they do their best to pass that cost on to the consumer. Now, what these economists argue is that since 2005, things have changed. We have become far more concentrated with larger companies controlling things and less competition out there.
That enables them to raise the price a lot faster. That’s what the economists are saying because we’ve got fewer companies. If this theory is correct, the usual government fixes for inflation and the thing that we are counting on now. The Fed is raising the interest rates for the banks. They are concerned it might not work as well this time. They are suggesting that unless we focus on stronger Antitrust Laws on these corporate concentrations, unless we start breaking up these monopolies that no one is labeling as actual monopolies, we could end up having to find other ways to adjust for inflation this time.
I can’t tell you what’s going on. I don’t know if this theory is right and if we are going to have to come up with new ways to curb our inflation. All I know is that I looked at some of the data, and there’s a certain good that many of us are buying that’s gone up a lot but when the stock reports come out, the companies show $13 billion in profit or $60 billion in profit.
If you are asking how long this is going to last, I don’t think anybody knows. It’s a new world, and there are new giant economic factors happening all the time. We are ten years into this upswing, this fantasy land we have been living in, which is not normal. We are post-pandemic. We’ve got a new giant corporate culture that sells us most of our stuff, and the government printed 80% of all the dollars out there in the last two years. I have no idea what’s going to happen. Anyone who definitively tells you that they know what’s going to happen with inflation they are selling you something.
What I do know is that I told you all this already in December, episode 67. If you are still here in this episode, that means that you are interested in how housing is going to affect inflation. I’m going to tell you three things. Number one, the price of everything is going up, including rent. One of the only monthly payments that you can fix, that you can lock in for 30 years, that’s a mortgage payment.
Save Up To Buy A Home.
You need to save up to buy a home but buying a home and locking in that payment can be your best shelter in the long-term against inflation and any other economic turmoil that happens. Rents always go up. A gallon of gas wasn’t $5, 30 years ago but imagine you could pay 2022 prices for shelter for the next 30 years or you can keep renting.
Number two, how does this whole inflation thing affect you as a first-time home buyer? I already told you, folks, and I don’t want to make this episode extra long. If you are a homie, you don’t need to hear number three, so you don’t need to stick around. You know what I’m going to say. Go to episode 67 now, go. That’s how I explain how inflation affects housing and how you can use a home to shelter yourself. You know what number three is. If you read all the time, you know what I’m going to say. You are still here, fine.
If you are homie and still here, you must be one of those completist people that has to see everything through to the end or you can’t change the episode because you are on the treadmill or your hands are wet because you are washing the dishes, which by the way, you wouldn’t have to do that much if you bought a home and got a good dishwasher, just saying. Anyway, the last thing, you can do this.
Important Links
- HowToBuyAHome.com
- Bright MLS
- Episode – Past Episode
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!
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