Over the last few weeks, we’ve heard media reports about inflation finally being under control. But is this real or just a “mirage”?
Let’s start by explaining that inflation is the increase in the overall price level of goods and services in an economy over time. It is caused by several factors, such as rising demand for goods and services (like it happened for homes when interest rates were so low), increased production costs, and a decreased money supply. The current state of inflation is a matter of debate, with some experts arguing that it is getting worse. In contrast, others believe that recent price increases are temporary and that the long-term trend is still toward low inflation.
Regardless of the debate over the current state of inflation, its impact on the real estate market cannot be ignored. Inflation can drive up the cost of building materials, labor, and other factors involved in real estate development, leading to higher prices for homes and rental properties. On the other hand, inflation can also boost the real estate market, especially since fixed-rate mortgages become more attractive by providing a hedge against rising prices.
In recent weeks, interest rates have dropped to the higher 5%s, leading to a 28% increase in loan applications, which means more buyers are in the market. I am now seeing it with my buyer clients. Last Sunday, we visited a home that had been on the market for 3 days and it already had multiple offers over asking price. And yes, I am talking about the last Sunday in January 2023; this is not a re-sent blog post from 2022.
If we start to see this trend again across the board, the Fed will be forced to increase interest rates again because Housing makes up for 30% of overall inflation. This means that as home prices go up, so does inflation.
In conclusion, while it’s unclear whether inflation is worsening long-term, its impact on the real estate market must be addressed. It’s essential to understand how inflation and interest rates can affect the cost of buying or renting a home, as well as the cost of construction and development. With this knowledge, you can make informed decisions about your real estate investments and ensure financial stability in the face of economic changes. If you would like to learn more about this subject, please respond to this email, and I will get back to you asap!
