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.
The association between interest rates and inflation is well known. When inflation runs wild, the Fed raises interest rates to slow the economy down.
Buyers competing for limited housing is known as a seller’s market because sellers have the upper hand and can dictate prices to some extent. Yet this could all be about to change. As we see 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
In addition to demand being likely to wane, we could also see an increase in supply. During the pandemic, there were supply issues across the globe due to social distancing restrictions and higher prices for raw materials. All of this made home construction slower — but now, the pace seems to be picking up.