How does inflation affect home prices? Many people have asked me this question this year. Inflation recently rose to 8.5%, and news media coverage has worried anyone looking to jump into the real estate market. You need to remember that headlines do more to terrify than clarify. Today I want to share what I’ve learned about inflation rates and deceleration in our current market. 

Interest rates and inflation are connected. The interest rates of the last few years were an anomaly, and we know the Federal Reserve had to intervene to reduce interest rates. Inflation is the enemy of long-term interest rates. You can’t go to a gas station or grocery store without noticing that prices are on the rise and inflation is present.

The good news is that real estate is a hedge against inflation. It’s a tangible asset that tends to hold value when inflation rises. While inflation goes up, the real estate market decelerates. Right now, we’re seeing more inventory and more days on market as interest rates increase. The 20% to 30% appreciation we’ve had in the past is no longer feasible; forecasters predict an appreciation of 4% to 5% will be more sustainable over the next few years. 

Deceleration does not mean depreciating home values. It simply means that we could not continue at the rate we were going. There is no indication that prices will fall because demand is pushing homeownership. We do not have a crystal ball to tell us the future, but if you’re waiting for interest rates or prices to fall, you may be waiting a long time. 

Right now, regardless of inflation numbers, real estate values are still high and expected to appreciate at a moderate rate. It is still a great time to sell, and buyers have more selections to choose from in this market. 

If you have any questions about our market or real estate in general, feel free to give me a call. I’m here to help!