The Impact of Inflation on the Housing Market

Houses next to graph

Inflation is at a 40-year high and this is affecting the housing market. Will the market see a slowdown? Will prices fall? Could we see a housing crash? Your clients are probably asking these questions and more. Let’s look at what experts are saying.

Uncertainty is Almost Certain

Uncertainty is what National Association of Realtors Chief Economist Lawrence Yun is forecasting. In May 2022, Yun told a group of industry experts he expects elevated inflation levels to continue over the next few months and put considerable strain on homebuyers. Yun says, “Mortgages now compared to just a few months ago are costing more money…For a median-priced home, the price difference is $300 to $400 more per month.”

Home Prices May Not Be Affected

Movement Mortgage’s Senior Loan Officer Ivan Simental recently told The Mortgage Reports Podcast, “Just because there’s inflation and interest rates are up does not mean that the prices of homes will go down or that the market is going to crash…Economists and people within the mortgage space are not predicting there will be a crash or even a dip in home values.” Rather, Simental says, rising rates and inflation are more likely to cause a market slowdown.

Can the Fed cool down the housing market?

That’s just what the Fed is trying to do with its recent rate hikes. But Moody’s Analytics Chief Economist Mark Zandi has doubts about the Fed’s ability to impact the housing market. He says, “They’re not going to get the decline in economic activity through housing that they typically get, at least not as quickly as they typically get it. They may have to press on the brakes even harder.”

Zillow Economist Nicole Bachaud doesn’t see the housing market cooling in the near future, saying, “The next couple of months things are going to heat up until we get to an inflection point [this summer].” MIT researcher Anne Thompson says, “I wouldn’t even necessarily call it a cooling, I’d call it a flattening of rates of appreciation, but not this year because there are still relatively low interest rates.” While not at the record low rates of the recent past, today’s rates are well within historical norms, and quite low compared to the spikes of the early 80s.

Brokers might do well to remind their clients of this important fact: despite rising inflation and the hits the housing market has taken since the onset of the coronavirus pandemic, now is still a great time to lock in an attractive rate with Luxury Mortgage Wholesale. Contact us today.

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