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How Inflation Affects The Real Estate Market

Apr 11, 2022


How Inflation Affects The Real Estate Market

If you're looking at a potential real estate transaction anytime soon, you're probably wondering how the current inflation will affect you and how long this period will last. Whether this period will be a benefit or detriment to you most likely depends on which side of the transaction you're on.


Right now, we are experiencing surging inflation at rates that we haven't seen for several decades. For the last several years, inflation has remained steady at an increase of approximately two percent a year, but now we're seeing increases of six percent. While we have experienced surges before, most people haven't seen one like this since the 1970s.

Housing was already experiencing a tight market before 2020. With record low interest rates, many people were looking to enter the market, and there was a larger demand for homes than the supply could meet.

Then 2020 ushered in a new era of working from home, and many more people began to seek out homes with more space and amenities. Other people decided it was better to stay put, so would-be sellers refrained from putting their homes on the market, which created an even more limited supply.


Now after two years, we're seeing other factors besides simple supply and demand affect home prices. Supply chain challenges are driving up costs as building materials are in short supply. Worker shortages are also driving up costs as employers are paying more and, therefore, charging customers more to cover the increased wage expenses.

And as in almost any inflationary period, the cost of borrowing money is increasing. This means that mortgage rates are starting to rise, which has a direct effect on how much a potential buyer can spend on their home. Most buyers calculate how much home they can afford to buy based on how much they can afford to pay each month. When a mortgage loan's interest payment takes up a greater share of monthly payment, a buyer will most likely find themselves looking at lower-priced homes.


So, if you're looking to sell your home and wondering how inflation will affect your sale, the bottom line is that you will probably see some benefits! As demand continues to outpace the supply of homes on the market, sellers are enjoying increased home values and sales that are at or above their asking prices.

Similarly, investors are seeing an increase in their return on investment as the values of homes have been increasing.


Buyers, on the other hand, will have more challenges. As mortgage rates begin to increase, it will cost more to finance a home. Some buyers might find themselves in need of larger down payments or ineligible for loans they might have previously qualified for. Other people might see the amount of home they can afford significantly decrease as more of their budgeted monthly payment goes to mortgage interest and financing costs than to the home price.

If you're a seller who is looking to also buy, you'll need to remember that you'll be affected, too. You might reap the benefit of an increased sale price on your current home, but you might find yourself challenged in finding or affording a comparable or larger home.


There are some key points to remember that can take the pain out of the home buying process, even in this inflationary market. For example, low unemployment means experts are predicting that a repeat of the 2008 housing bubble is unlikely.

And, with the continued shift to remote work, many buyers might find themselves able to consider options they wouldn't have been able to before. Homes in suburbs and rural areas further from city hubs are often cheaper, and for buyers who can continue working from home, these areas might be more feasible than they were two or three years ago.

Finally, even the increased mortgage rates that we're beginning to see are still very low compared to historical rates, making this still a good time to buy.

If you're looking to buy or sell your home, the professionals at Orizon Real Estate can help you navigate today's market. One of our experienced agents can help you get started. Give us a call at 260-248-8961.