How Inflation Affects Home Prices

Inflation is in every other headline. And you can see it in your grocery receipts. It’s risen significantly in 2022.

It makes sense that the cost of housing has also risen. In fact, the high demand for real estate is a current driver of inflation.

Not Enough Houses for Sale = Higher Prices (a.k.a. Inflation)

Like other goods and services, real estate follows the simple law of supply and demand. When there are not enough houses to meet the demand, the price of the existing supply goes up.

Low interest rates, especially during the first two years of the COVID pandemic, supported the housing market and consumer spending. That backfired, didn’t it? The low rates made it easy for people to buy, but it didn’t spur existing homeowners to sell. The environment of uncertainty made them more likely to refinance and add-on.

The lack of sellers is keeping the housing inventory unusually low. Move-in ready houses that are for sale, go under contract within days, typically over the asking price. That’s frustrating buyers and stoking already inflated home prices.

New housing construction was making a comeback, but then there were delays due to labor shortages and supply chain bottlenecks. Therefore, these new houses are cost significantly more, with increases passed onto the buyer/developer.

Capitalizing on Inflation with Real Estate

I’m an optimist, so let me give you the “glass half full” scenario.

While inflation can negatively affect real estate with inflation in the form of higher prices, it can also offer you opportunities.

If you are in a position to “cash out” the equity of your home and rent for a bit while the market and inflation cools off, that’s a move worth considering. Or you could move to a less expensive home or locale.

And you can refinance when rates come down again or consider an adjustable mortgage to for the first few years. As a mortgage colleague put it, “Date the rate and marry the house.”

On the other side of the door, if you’re a real estate investor earning income from rental properties, inflation is good because you’re able to charge higher rent.

Renters’ Hedge Against Inflation

If you are renting and want to keep your monthly housing budget more stable, buying a home is a great hedge against inflation. The up-front cash is more (although $5000 for a rental deposit is pretty big). But as home prices go up over time, you’re lowering the loan-to-value of your debt and increasing your equity. Also, your mortgage doesn’t rise at the same rate as your rent would.

“Should I Stay, or Should I Go?”

If you want or need to buy or sell a house, be aware of the market conditions. But don’t let them stop you from living your best life.

Sellers, list it competitively, in the best condition as you can afford, based on the current market at the time of listing.

Buyers, get pre-qualified (not just pre-approved). You will know your shopping budget and be realistic about what you can get for your max. You’ll also be able to compete with all-cash buyers.

Are you ready to Get Moving?

If you are buying or selling a property, use a Realtor® and housing guide like me to bring you the greatest happiness to value ratio. 😊

I look forward to hearing from you!
(203) 812-9654 | marj.clark@cbrealty.com
www.MarjClarkSellsCT.com | www.marjclark.realtor