Inflation is at its highest rate in decades. So how will inflation affect the housing market? Here’s a quick primer on the nature of inflation and how it affects housing decisions for homeowners, buyers, and sellers.
What is inflation?
You certainly can spot inflation when you see it. For example, that loaf of bread, a tank of gas, or a dream vacation costs more than it used to. But what causes this increase in prices?
Inflation is the decline in a dollar’s purchasing power. It arises when an over-supply of money chases a static or declining number of goods. The result is that it takes more money to buy the same goods.
The causes of inflation are numerous and often complex. Low-interest rates on loans and government spending in excess of tax revenue can be contributors. Currently, factors such as supply chain shortages, the impact of the Covid-19 pandemic, and the Russian-Ukraine war are contributing to record inflation.
How does inflation affect the housing market?
Inflation bids up the price of homes just like any other good consumers buy. Here’s how that affects the different segments of the housing market.
Homeowners. Current owners may see inflation as a benefit since the value of their property rises. As wages rise with inflation, their house payment becomes a smaller part of their overall budget.
Buyers. Inflation affects buyers in at least two ways. First, it makes the price of homes rise. Second, due to U.S. Federal Reserve Bank’s actions to tamp inflation, interest rates rise. So buyers likely will feel pressure to grab a house while they can still afford it. Increased borrowing costs may mean they have to buy a smaller or less desirable home.
As Bankrate mentions, “A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same. That’s certainly not the case if you’re renting.”
Sellers. In the short term, at least, inflation benefits sellers because the value of their property rises, and their capital gain on the sale of their home will be higher. But if they then buy a new home, they will do so in an inflationary market and face the buyers’ challenges described above.
Impact on Your Business
So what did this mean for the average agent? To be brutally honest, more effort for less income. Consider competing for fewer listings and spending more on lead generation. However, one sure way to futureproof your income through this inflationary market is to join a 100% Commission brokerage, such as Fathom Realty.
In addition, Fathom provides training, technology, agent services, and branding support at no additional charge to ALL agents, not just high-producers. At Fathom, YOU MATTER!
The time is NOW to join Fathom Realty and enjoy the income and benefits you truly deserve.
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