The Effects of Inflation in the Real Estate Market

Inflation in 2022 is driven by a number of factors, and a lot of them have to do with massive economic upheaval in the past two years. Chief among the influences are the supply chain issues due to COVID-19, making shortages and therefore higher demand than supply in many industries. Basic goods like groceries and gasoline have seen prices go up.

Real estate is an anomaly in the inflation world in many ways, since it operates on its own cycle of supply and demand and has essentially been in a prolonged seller’s market for two years. As part of an effort to rein in inflation overall, mortgage rates have been rising for the past six months, so the coming months and years may see a very different housing market due to all that inflation of value. Here’s what you can probably expect if you might be selling a home.

Prices may stabilize or fall

The long and short of inflation in the housing market is that home values aren’t necessarily going to stay at these all-time highs. The idea that the housing market generally goes up was shaken in 2008 but also should be in question after a two-year housing market upheaval. The Federal Reserve and other government entities are watching the market closely, since they don’t want a crash, but rising mortgage rates are reducing demand for homes. When fewer people are bidding on any one home, that buyer has more leverage and may end up paying less. The goal is to avoid losing value, per se, since that can make payments harder for mortgage borrowers, but to simply stabilize prices, seeing less of the highly-over-asking-price sales than we’ve seen for the past two years.

Individual home demand is much less certain

As a homeowner, it’s wise to follow the guidance of your real estate agent during these weird selling times. The key is that your home may have a hypothetical value, and it might have quickly received an offer at that level in 2021. But with fewer buyers in the market now due to high mortgage rates and other factors, getting your ideal offer is entirely dependent on finding a buyer who is convinced to pay at that level. A wise move if you need to sell right now is to approach your sale with 2019 expectations and be happy if your home sells for higher than it would have back then. 

Getting a home with a reasonable payment requires number-crunching

If you’re a buyer right now, your struggle is probably going to be more in the finding of reasonable financing. Some people who were happily locking in fixed-rate mortgages in 2020 would be exploring ARM (adjustable-rate mortgages) options now, since the hope is that the changing rates would eventually come down from their current levels. A great agent will be able to help you crunch those numbers and be very honest about what is affordable given the substantial interest payments. Don’t be afraid to take your time buying though - as mortgage rates go up, you may be able to put a lower offer in on a home that isn’t getting much interest and get quite a deal in spite of your higher interest rate.