Inflation. You can’t ignore it, even if you tried to! It has impacted every space of our lives from the way we shop (or don’t!) to our portfolio (yeah, now’s NOT the time to have a peak) and let’s not forget that not too long ago none of this was a problem at all. It didn’t even make the headlines! Now it’s all everyone’s talking about. 

I had a quick look to see when I actually started writing about inflation for you guys and it was in Dec of last year. That was when inflation was at 6.8%. It’s now 10%. And the partying has stopped.

Now we’re just waiting to see how long the music will be off for. My gut is telling me a lot longer than anyone’s actually prepared for. Freaked out by all this? Read here how to organise your finances in times of inflation and high rates.

Before this hangover, Americans were busy lapping up stimi checks that the Fed practically threw out like free candy, not to mention record-low interest rates, and enjoying the whopper rallies that followed.

And while us Brits, as stimi-less as we were, like our friends across the pond, we also enjoyed record-low interest rates (0.1% to be exact) and now they’re above 4%. Oh, what a time.

Will rates come down as soon as they went up? The million dollar question. I think it’s only a matter of time. Once we enter a recession, the genie will be out the bottle. Schmooze for another time though!

Changing our housing habits 

When it comes to inflation at the levels we’re seeing, it’s causing (or forcing!) us to change and alter our habits and one area that we’re seeing its prominence is in housing.

We’ve had an era of low(ish) rents which meant that with every passing year of you not owning your home you weren’t going out of pocket too much.

With rents going up it makes that so much harder to save for a property of your own since so much of your hard-earned cash (or what’s left after everyone’s grabbed their fair share) is gobbled up by whopper rents.

While the flip side of ridiculously high inflation is higher interest rates and increased housing affordability (hurrah!) what’s the point if we’re wasting our money on higher rents which btw risen by 20% least year.

The solution many are finding: moving back in with their folks or flatmates!

Flatmates are your money godsends – use them well!

My guess is that we’re going to see a much more widespread shift whereby people start flat/house sharing again. Since covid, we became solo creatures of space. Being cramped with 5 other flatmates spending lockdown together can make anyone yearn for some space (indoor and out!).

After high school, I took a gap year and lived in an apartment with 12 other girls. Coming home, having my very own space, never tasted so sweet. I don’t think I’d have coped all that well being there during lockdown so I totally get the desperation for some space!

As covid pushed people out, this pushed up rents both in and out of the city as people began renting (or buying) their own places, ditching their flatmates.

But now I think this trend will slowly start reversing (if it hasn’t done so already). Energy prices are through the roof and not everyone will be able to cope on their own.

Private renters spend an average 31% of their income on rent which means they’re most vulnerable to rising energy costs since they have less flexibility to cope with rising prices.

So we might see a reunion of flatmates as people start sharing accommodations to cut down on their rent and energy bills. Keeping warm is expensive, and will get even more so when we hit the winter, so sharing a place makes perfect financial sense. 

I’m living at home with my parents and I know plenty of people who have moved back into their mum and dads – millennials included! Every little helps and if you can get away with living rent free or contributing to it, my guess is it’ll be loads less than what you’d be paying if you were living alone. 

It also means we’ll be able to put more money aside for our deposit than had we been living alone.

While rising energy bills and rising rents will cause people to start living together again, there is another piece of the housing puzzle that inflation affects and that is the cost of buying a property.

Housing becomes less affordable as rates since since it’ll cost loads more to service your mortgage. And while the massive benefit of this is that it lowers house prices (read here how that could make it easier for first-time buyers), it still leaves us with the affordability issue.

Buying a cheaper property with higher interest rates will mean you need a lower deposit (yay) but you’ll also need to factor in higher monthly expenses. Right now in the US, the average 30-year fixed mortgage is 6.89% which is more than double what it was a year earlier!

In Q4 of 2020, median mortgage payments and asking rents were basically equal at just under $1,200. Since then, rents have gone up to $1,314 in June but on the flip side, mortgage payments have gone up by 58% to $1,893.

This is a massive thing to take into account. Perspective buyers are thinking they might as well as keep renting until mortgage rates cool off.

That they’ll have to simply bite the bullet of rising rents – and renting together can certainly slim those costs. But it’s not always possible. If you’ve got a partner, I don’t think you’re going to want to share a place with 5 others!

But you obviously can’t time the market (as wishful as that would be) and worsening affordability to the levels we’re seeing, usually collides with a housing correction, at the very least.

It’s not an easy time and there are definitely choices to be made, but you know what I like to say: don’t buy when the market is ready, buy when you’re ready.

If renting a little longer helps you get on your feet (more like your deposit to grow legs), then so be it.

Don’t worry about what others are doing.

Do what works for you and if that means moving back in with your folks (however embarrassing that might be!) or finding yourselves some flatmates, do it.

Your finances will thank you. Trust me.

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.