Inflation has been a word on many people’s tongues since the end of 2021. It’s a worry to many different people for various reasons. From individuals who are worried they won’t be able to afford their groceries after price hikes to business owners concerned about covering their overhead costs.
However, one of the significant consequences of rising inflation is the potential for housing prices to rise, possibly causing a housing market crisis.
Since growing prices are the literal definition of inflation, it seems reasonable to assume properties will follow this general pattern — especially after house prices rose by almost 20% in 2021. Let’s take a closer look at the trends that have been brewing over recent times.
You might be wondering what’s in store for the rental market. So far, it’s kept up with price increases elsewhere in the economy faster than house prices as a whole, and rent in the US has reached an all-time high.
Although many Millennials are moving toward homeownership, a large portion remains in the rental market due to the burden of student loans. Along with economic factors, this has resulted in excessive demand.
In response to higher inflation, interest rates are rising causing reduced demand for mortgage. But it's not just mortgages become less desirable and many people struggling to cover basic household expenses like gas and food, reduced demand for mortgages seems a reasonable prediction.
Slower mortgage demand makes sense when you consider that the bulk of those in a financial position to purchase homes probably did so at the heat of the pandemic when conditions were favorable for buyers.
So far, we’ve focused on the impact of inflation and current conditions on those who want to buy properties to live in themselves. But it’s important not to forget that real estate investors also play a massive role in the market.
When it comes to investment, most people make decisions based on expectations. There are currently two narratives — one focuses on a housing crash coming soon due to interest rate rises, and another on prices increasing in line with inflation.