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How Inflation Affects the Housing Market

Posted on October 23, 2023 (October 23, 2023) by Anthony Loffredo

Your Home Sold Guaranteed Realty - Loffredo Real Estate Group

Have you ever wondered how the property market is affected by inflation? Unbelievably, they are related. Both are impacted whenever changes are made to one. Here is a summary of how the two relate to one another.

The Connection Between Housing and General Inflation

The indicator of price growth specifically for housing is called shelter inflation. It is based on a poll that was conducted of homeowners and renters. Renters are asked how much they pay in rent, and homeowners are asked how much they would charge for their homes if they weren’t residing in them.

It tracks the cost of housing in a manner similar to how it overall tracks the cost of basic necessities. Based on that study, It has been declining for four straight months.

Why is this important? Inflation in housing accounts for almost one-third of overall, according to the Consumer Price Index (CPI). Therefore, changes in shelter result in changes that are seen in total inflation.

The Federal Reserve (the Fed) would be happy to see such moderation. Since the beginning of 2022, they have been attempting to curb. Despite considerable progress (it reached a height of 8.9% in the middle of last year), they are still working to reach their 2% target (the most recent figure is 3.3%)

Mortgage Rates’ Future: Will It Be Better?

What does this mean for you, then? Although the Fed’s policies don’t directly affect mortgage rates, they do have an impact. According to Mortgage Professional America (MPA)

“. ..Inflation and mortgage rates are related, albeit indirectly. Mortgage rates increase in response to rising inflation in order to maintain the US dollar’s value. Mortgage rates decrease in tandem with falls in inflation.

The future of mortgage rates cannot be predicted, but it is comforting to see the economy showing signs.

Bottom Line

Get in touch with a local real estate professional who can assist you if you’re looking to buy, sell, or simply want to stay updated about the property market.

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