Everyone is experiencing the pinch of inflation right now. The U.S. inflation rate is at a 40-year high of 7.5%, as of January 2022. Let’s dig deeper into understanding all the ways inflation can affect your home buying process
1.Home Appreciation: Real Estate Values Usually Rise in Line with Inflation
We’ve all heard that a home is one of the best investments you can make. That saying comes from how the value of your home will likely rise over the time that you own it. As inflation climbs for everyday items you’re purchasing, it also drives up home prices. That means more equity for you if you’re already a homeowner.
2.Home Prices: Supply and Demand Still Play the Largest Role in Valuation
During a housing market like today’s, buyers often mention a concern that they will buy high and be forced to sell lower, meaning they would lose money on their home. Regardless of market conditions, supply and demand always play the largest role in pricing.
That means that it’s possible even in a period of high inflation that current homeowners could flood the market with too much supply as they seek to capitalize on high selling prices.
3.Interest Rates: Rising Rates Can Counteract Inflation
Another piece to understanding the housing market puzzle is interest rates. Rates interact with inflation, supply, and demand as separate forces pulling the market in different directions. These varying influences usually result in an overall steadiness. Rates are currently increasing incrementally, and the result so far has been a status quo. Housing supply is still suppressed, and demand is steady.
4.Drastic Inflation Doesn’t Go on Forever
With an understanding of the major forces at play in the housing market, you might still have some questions about continued inflation. Sure, things are steady now, but what if uncontrolled inflation continues?
It’s important to remember that we can’t predict every scenario, and it doesn’t pay to pine over all of the what-ifs because many of them will never happen.