How does inflation impact the housing market?

How does inflation impact the housing market?

red line showing inflation impact the housing market over a white house

What is inflation? 

You may have heard about inflation and its effects on the housing market, but you may not be quite sure what it is. Inflation is the increase in the cost of living and the general level of prices for goods and services over a period of time. It is measured by the Consumer Price Index (CPI), which is calculated by tracking the cost of a fixed basket of goods and services over time. 

Inflation can result in higher mortgage interest rates, which makes it more difficult for home buyers to purchase a house. Housing inflation also causes houses that are already on the market to be more expensive for potential buyers. 

Causes of inflation 

Inflation occurs when the amount of money in circulation increases faster than the amount of goods and services available. Since prices go up, the purchasing power of the dollar goes down. It can be caused by factors like an increase in costs related to production or a decrease in the value of currency. It can also be caused by changes in supply and demand, such as a natural disaster that affects food production. Other causes may be supply shocks like commodity shortages, large market swings, or energy price changes. 

Inflation is also often caused by the Federal Reserve (also known as the Fed) printing more money or increasing demand through deficit spending in response to economic changes. This can lead to an increase in wages, which will then feed into higher prices for goods.  

If a seller wants to capitalize on the market while inflation is in full swing, they need to understand the effect inflation has on their local market and how best to take advantage of it. 


How does inflation affect the housing market?   

Rising housing prices can make it financially difficult for buyers to purchase a home. However, these price hikes also have the potential to create a market where buyers may be more willing to invest in a home if they know that its value will rise as time passes and inflation increases. 

This means that sellers have the opportunity to make larger profits on their homes if they decide to sell them during an inflationary period. Keep in mind that this doesn’t necessarily mean that selling in an inflationary period is always advantageous. If the cost of owning a home continues to rise too high during a period of inflation, buyers may become reluctant to purchase, leaving sellers with fewer options for selling their houses. 

Inflation also affects investors who are looking to buy rental properties. Rising rental prices offer investors the potential for greater returns on their investments. If rent prices are outpaced by inflation, however, investors may be left with little return on their investment despite high rental payments from tenants.  

If you are planning on selling your house or rental property during a period of inflation, there are some things you can do to ensure you get the best price possible for it: 

  • Boost property value. Small improvements like updating appliances or painting walls and trim can help you get more for your house as prices are rising. 
  • Take advantage of rising home prices. As inflation starts to rise, selling your house before buyers are squeezed out can give you more money in hand from the sale of the property. 
  • Consider cash offers. Cash home buyers have access to funds that can quickly close deals even when markets are uncertain. 

Does this make it a buyer’s market or a seller's market? 

Inflation can influence the housing market to create either a buyer’s or a seller’s market. A buyer’s market is generally characterized by a surplus of houses and higher interest rates due to tighter credit restrictions imposed by banks. On the other hand, a seller’s market occurs when there are fewer houses, which results in higher prices. 

A key indicator of whether the housing market is a buyer’s or seller’s market is the inflation rate, which affects both mortgage rates and property prices. A high inflation rate means that mortgage rates are likely to be higher, making it more expensive for potential home buyers to take out loans. A lower inflation rate will result in lower mortgage rates and potentially create more demand for real estate in areas where there are fewer available homes. 


How does inflation impact sellers?  

Inflation can drastically affect home sellers as housing prices rise and housing inventory diminishes. When inflation takes effect, the cost of everything rises. When you factor in a low inventory of houses for sale, inflation pushes the prices even further into the stratosphere.  

This can be especially difficult for home sellers trying to offload their property in a buyer’s market. As prices increase with inflation, buyers become reluctant to purchase homes with higher prices, and they may demand larger discounts to make a sale happen. Sellers may have to reduce their prices significantly in order to get a house sold. 

Inflation can also affect home sellers, depending on the current state of the local real estate market. If there is a strong demand for properties but few available homes for sale, then an increase in inflation could result in higher property values. This creates an opportunity for home sellers to get an optimal price for their houses. If inflation remains low, the home sellers may have trouble getting buyers interested or receiving offers above their asking price. 


What can you do to mitigate the effects of inflation? 

Inflation can have a big impact on the housing market, so it is important to be aware of the risks and how to avoid them. By understanding what causes inflation and taking measures to lessen its effects on a home sale, sellers can take advantage of the current housing market while protecting their investment against potential future declines in prices due to further effects of inflation. 

Home sellers have some options when dealing with a market influenced by inflation: 

  • Sell quickly. Selling your house quickly helps ensure that you get a good price for it before inflation has a chance to squeeze out buyers or require you to offer concessions. You could either do a traditional sale or sell FSBO (for sale by owner). 
  • Sell to a cash home buyer. Selling your home to a cash home buyer can help you avoid any loss from inflation that may occur during the lengthy traditional sale process. Cash home buyers offer more security since they are much less likely to back out of a deal, and they do not have the same problems as typical buyers do when it comes to financing.

Selling directly to a cash home buyer like HomeVestors® can provide much-needed liquidity during times of economic uncertainty and means that you won’t have to wait around for inflation to catch up with your house value.    


Sell to HomeVestors®

Let us help you take advantage of the market! HomeVestors is America’s trusted home buyer for a reason. For over 25 years, we have been helping home sellers skip the hassle of traditional selling and avoid being affected by dips and fluctuations in the housing market. We have helped over 140,000 homeowners get quick cash for their properties, and with a 95%* satisfaction rate, you know you can trust our easy, seller-oriented process.  

Contact us today at 866-200-6475 to learn more and get a free, no-obligation consultation for a fair, all-cash offer on your house.