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Inflation cuts homebuyer budgets by $40,000

With inflation at 8.5%, the average consumer is spending $511 more per month compared to a year ago

Home buyers looking for a home in 2022 will have to look for properties that are roughly $40,000 cheaper, according to a report released by the National Association of Realtors on Wednesday. According to NAR, rising inflation is to blame for the smaller home buying budgets.

In March, inflation accelerated to 8.5%, the strongest pace of inflation in 40 years. Due to rising prices, the average consumer in spending $511 more per month compared to a year ago. Annually this works out to $6,132.

Energy commodities, such as fuel oil and motor oil (including gas) saw an inflation rate of 48.2% in March, the steepest growth pace of any category, while the price of energy services rose 32%. These dramatic price increases resulted in nearly one third of the additional $511 consumes are spending each month being spend on energy services and commodities.

The price of food rose 8.8% in March, with the prices of food consumed at home rising at an even stronger of 10%.

Commodities other than food and energy saw 11.7% price growth, with the largest increase coming from the cost of used cars and trucks (35.3%).

Services expenditure also rose increasing 4.7% on average, with airline fares seeing the greatest increase at 24%.

Finally, the cost of shelter rose 5% overall, with the rent on primary residences going up 4.4% and equivalent rent on owner-occupied housing up 4.5%. Meanwhile asking rents were up 11% year-over-year based on proprietary data. On average, 32% of consumer spending is spent on shelter.

Excluding the cost of shelter, the average consumer is spending an additional $429/ month, while average weekly wages rose just $212 per month leaving consumers about $217 short per month. Due to this, if a 4.72% mortgage rate is assumed, the average consumer will be looking for a home that is $41,793 less.

The supply of homes priced under $250,000 dwindling. In February 2022, homes priced at $250,000 and below accounted for just 29.5% of existing-home sales, down from 47.5% in January 2020.  

Due to this rising inflation, higher mortgage rates and low housing inventory, NAR chief economist Lawrence Yun expects housing demand to decreased 10% in 2022. Despite this drop off in demand, Yun expects home prices to rise about 5% due to the tight supply of homes.