Inflation and Home Prices

The last time inflation was as high was in 1982 where the rate was 6.2% and interest rates got as high as 20%. My parents bought their house in New Hampshire around that time. Many folks thought it was crazy, but he said to me I had a very small mortgage so it wasn’t so crazy.  Fast forward to 2021 where we have an inflation rate of 6.8%. You might be wondering what that translates into your daily life. Well, it means your shelling out more money for gas, for food, and pretty much everything else. Your money doesn’t go as far as it once did.

How does inflation affect housing? 

Inflation influences the real estate market in a big way. Real Estate has often been considered a safe haven during inflation periods. In the 1970s researchers found that folks who owned real estate their value of the home offset rising prices elsewhere. When you buy a home you are buying it for a set price. If you have a mortgage you locking into a rate. So the price you pay stays the same. Other costs go up but your home stays the same 

 

 

What is inflation and what causes it? 

The cost of services rises thereby decreasing the purchasing power of the money you have to spend. Right now we have several factors at play causing inflation 

1. Government financial assistance during Covid 19 Pandemic as government-supported American households and provided financial assistance that gave folks more purchasing power. Alot of Americans who normally would travel into an office were working remotely. In turn, they weren’t spending money on take-out lunches and general commuting expenses.  So the supply side of those good and services needed to charge more since there were fewer customers. As transactions dropped business owners raised their prices to stay afloat to make ends meet.
2. Supply Chain issues are not just happening in the United States but all over the globe. Lockdowns disrupted Manufacturing due to covid and lockdowns slowed business.  Another significant problem was getting goods to ports. There was a huge bottleneck in California where many products arrived but couldn’t get to the stores.  There is a work shortage. Companies are raising wages to address the worker shortage,  but when you raise prices that means the product price must be raised. So if you bought a bathroom sink for $100 dollars you have to find a way to offset the cost to get that sink.

How does inflation affect home prices? 

Even before inflation home prices were high. Prices will continue to climb and that also include rents. Rents often climb very quickly during times of inflation.  Remember I said early in this blog real estate has been considered a safe haven during times of inflation,  Expect more folks to hedge their bets in real estate and buy where ever they can vs rent. Some will be buying for themselves but some will be looking at it as an investment to ride out. The more folks jump into the housing market the lower supply and higher prices buyers will see many parts of the country also have zoning issues which makes it a problem for construction.  Restrictions on how you use the land will also limit how much supply can be built which will affect pricing. 

What Does inflation mean to home buyers and sellers? 

Inflation will affect buyers’ budgets. They will have less wiggle room if they find a dream home that well others find a dream as well. So less bidding wars. The mortgage always determines what a buyer can afford but inflation rates move in tandem with mortgage rates. Mortgage rates will increase. The Feds have been the principal purchaser of mortgage-backed securities but that is winding down in April 2022. This will impact rates and they will increase.

Realtor, com reported that in Late November Freddie Max rates went up to 3.10% meaning that today’s buyers of the median-priced home will spend $1660 a month more on their mortgage payment which is a noticeable impact. For home sellers, the tight market gives many sellers something to smile about, but I ask where are you moving to Seller? If the seller needs to buy a home themselves they might have a tough time and find they have less to spend on a new home. 

How Long will inflation last? 

The truth is we don’t know. The supply Chain has to improve. Goods need to get to the services that need them quickly. When goods arrive at the ports and they are able to be loaded quickly onto trucks that can take those goods to the stores. Hopefully, this will be undone soon, but it could be with us for a bit. Renters who can buy really should make that a goal. even if you have a roommate buying a place together is not a bad idea vs renting.  If you thinking maybe I need to get out of renting and into homeownership let’s talk I can connect you to all the right people making homeownership a reality. If you are a seller thinking you want to sell and wondering what your home would sell for and want a well-thought-out plan let’s talk.