13 Jan How Inflation Is Affecting Real Estate
Inflation is the rise of prices for goods and services over time and it has been no stranger this year. Inflation can have an impact on many sectors. Many people are wondering how inflation affects the real estate market. Is there any correlation? The short answer is absolutely.
When inflation hits the housing market, it shows up in a different way for investors, builders, borrowers, sellers, and renters. Much like a ripple effect, when the cost of goods and services rise, so does much of everything else surrounding it.
Housing prices tend to rise with inflation. For newly constructed homes, the rising cost of building materials has a direct impact on home prices. Lumber costs have been increasing for the last few years. When costs are high and supply short, builders take longer to develop homes and inventory lessens.
Existing homes then increase in price due to the high buying demand and lack of available inventory. The housing market has experienced a significant increase in home prices over the last year. The persisting undersupply and economic impacts of Covid-19 have pushed inflation rates past the 1.8 average seen over the last decade. Some experts claim inflation is here to stay, while others see it leveling out in 2022. At this point, it is difficult to predict. If you are in the market to buy or sell, make sure to keep communication open with your real estate professionals. Ask questions and be as prepared as possible so you can have a strong plan.
Historically, mortgage rates have risen alongside inflation. In 2020, the market saw much activity, surprisingly, before home prices grew. Rates were low enough for people to take out a loan and have larger buying power making homes more affordable. As mortgage rates began to increase, prospective buyers fell back to the sidelines. Add in the higher home prices, and the available houses become less affordable. Therefore, less people are not applying for home loans. When buying demand decreases, home prices follow.
More people are likely to continue renting or find a rental home that meets their budget. Due to inflation, rent prices have been rising rapidly. Similarly to single-family homes, single-family rentals have seen a massive shortage. With an influx of renters looking for available homes and apartments, landlords raise the monthly rent knowing that tenants are willing to pay more.
Rental properties become a great investment during inflation due to the demand and willingness to pay higher prices. Owning real estate property generally sees a rise in home value with inflation. Many investors see real estate as a safe bet in an otherwise volatile economy. During inflation, be sure to stay up to date to make sure it is benefiting your asset rather than impact your debt.
If you have questions on how inflation directly affects you, reach out to us or your real estate and mortgage professionals. We can help you create a strategy and better understand the impact inflation has on your investment, real estate goals, and life.
*This article is intended to be accurate, but the information is not guaranteed. Please reach out to us directly if you have any specific real estate or mortgage questions or would like help from a local professional. The article was written by Sparkling Marketing, Inc., with information from resources like FHFA, Fannie Mae, and Insider.
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