How is Inflation Affecting the Housing Market Right Now?

No matter where you live in the world, rising inflation is a hot news topic. With the increasing cost of groceries and services, you don’t need to be an economist to know that inflation is beyond the normal rate of a healthy economy. Strategic personal finance choices can safeguard against rising inflation, such as saving money by finding a second income source or cutting back on spending. People who are in the process of planning a major purchase — for example, buying or selling a home — also have other financial factors to consider. Real estate experts and economists are the best sources to understand how inflation is affecting the housing market right now.

Shifting Budgets

If you pay close attention to price shifts, you’ll notice that nearly everything costs more. Many factors are contributing to this change including the war in Ukraine, post-Covid-19 lifestyle changes, and the energy crisis. When it comes to real estate, home prices are shifting, along with labor rates, building supply costs, and utility bills. First-time home buyers may be surprised by how much they need to adjust their budgets, and sellers may find it more challenging financially to make fixes before putting a home on the market.

Housing Market Overview

If the price of everything is going up then it might seem that home prices would too. However, that is not the case everywhere in the United States. In December 2022, the Federal Reserve increased interest rates to the highest level in 15 years, to reach between 4.25 and 4.5 percent. When mortgage interest rates rise, some buyers may step away from the market, since home mortgages then cost more. However, Freddie Mac reported in January 2023 that mortgage rates are decreasing and that could be good news for buyers.

Buyers Take Note

When interest rates were rising, the market cooled, and home prices actually went down across most of the United States. If rates continue to go down — and experts expect that they will — home prices may return to pre-pandemic high prices, when it was a sellers’ market with not enough homes to keep up with demand. With rising inflation, buyers will also want to budget for higher utility bills and repair costs — especially if making the shift from renting to owning when those expenses tend to go up anyway.

Sellers on Standby

Sellers also need to think about shifting mortgage rates, especially if taking on a home mortgage to buy their next property. With mortgage rates dipping, sellers may find it best to wait, with the possibility that buyers may be willing to pay more in the future, facing competition with other buyers. If inflation continues to rise, the cost of getting a home ready to sell could also rise. Sellers, faced with the prospect of expensive repairs, could decide to turn to an investor for a faster home sale, selling a home as-is.

Market shifts are inevitable in real estate and the best strategy is to partner with a professional agent. They can keep you informed about the market, whether you are a buyer or a seller.