How Does Inflation Affect Housing Prices?

Inflation tends to increase housing prices. The Federal Reserve raises interest rates from time to time to bring inflation down. The Consumer Price Index, a tool to track inflation, jumped 0.4% in September 2022 after a modest increase of 0.1% in August.

As a result, mortgage rates have risen, with the average 30-year fixed rate surpassing 7%. If you’re looking to buy or refinance, Altitude Home Loans is the trusted Mortgage Broker in Tucson, AZ. Call (520) 500-1010 to learn about inflation and house prices from our experienced team.

In this article, we will answer the question, “how does inflation affect housing prices?”

Federal Reserve Rate Hikes Affect Mortgage Rates

Mortgage rate changes depend on many factors, including inflation, real estate markets, and economic growth. In September 2022, the Federal Reserve increased short-term rates by 75 points. The increased rate means credit cards, car loans, and adjustable-rate mortgages come with higher interest rates.

As inflation soars and the Federal Reserve responds by raising interest rates, borrowing becomes substantially more expensive for consumers. According to WalletHub, the average home loan of $402,600, with a 30-year fixed rate, would cost homebuyers $30,600 more in interest. 

Inflation Increases Cost of Homes

Rising interest rates have increased housing market prices. In January 2022, the 30-year mortgage rates averaged around 3.22%. More buyers adjusted their budgets for home shopping in 2022, as their purchasing power dropped by 25%.

Inflation also increases construction and homebuilding costs. The National Association of Home Builders reports that less than 10% of new homes priced under $300,000 were available in April 2022. In comparison, that share was 25% in 2021.

So how does inflation affect housing prices? Both homebuyers and sellers face challenges when inflation increases housing prices. Buyers may experience steeper interest payments on their mortgages, while sellers may have trouble selling before they buy a new home.

How Does Inflation Affect House Prices?

Housing prices often rise during inflation, which is favorable for existing homeowners. The supply of houses for sale is low, while demand from prospective buyers is high. Many homeowners put their homes on the market during inflation to receive offers above market value.

As inflation rises, budgets tend to tighten. For homebuyers, high inflation rates limit their financing options. The mortgage rate is one of the key factors determining whether a person can afford a house. 

During inflation, rent prices increase because buyers cannot afford homes. Advisors recommend that investors hold on to their real estate as a hedge against inflation, as housing prices usually increase over time. 

Give Altitude Home Loans a Call Today

Altitude Home Loans can provide home loans, buying advice, and more information to answer the question “how does inflation affect housing prices?” Our loan officers know which mortgage option will work best based on your unique financial situation. We can let you know the necessary documents for a mortgage refinance to speed up the process. 

Contact Altitude Home Loans in Tucson, AZ, to buy a new home or refinance your mortgage. Call us at (520) 500-1010.