{"id":76270,"date":"2022-06-01T14:44:51","date_gmt":"2022-06-01T21:44:51","guid":{"rendered":"https:\/\/www.redfin.com\/blog\/?p=76270"},"modified":"2023-10-06T10:16:38","modified_gmt":"2023-10-06T17:16:38","slug":"inflation-and-house-prices","status":"publish","type":"post","link":"https:\/\/www.redfin.com\/blog\/inflation-and-house-prices\/","title":{"rendered":"Inflation and House Prices: What Homebuyers, Sellers, and Renters Need to Know"},"content":{"rendered":"

Prices are up almost everywhere \u2013 from food, to gas, to home prices. In February 2012, the nationwide <\/span>median sale price<\/span><\/a> of a house in the U.S. was $160,000. More than ten years later, that number is up to a record <\/span>$423,000<\/span><\/a>. Homes in markets like <\/span>Seattle, WA<\/span><\/a>, regularly face bidding wars, while nationwide, <\/span>nearly 6,000<\/span><\/a> have sold for $100,000 or more above asking price this year. Home prices have been steadily rising for years, but they have dramatically increased in recent months. Why?\u00a0<\/span><\/p>\n

There are three major reasons why housing is currently so expensive: limited supply, high demand, and historic inflation rates. The housing market is closely tied to the nation\u2019s economy and has historically been a safe investment option for homebuyers. However, post-pandemic factors have raised average national inflation rates to a historic high of <\/span>8.3% in April<\/span><\/a>. Unsurprisingly, inflation influences the real estate market to a large degree, pricing many people out of both homeownership and <\/span>rental properties<\/span><\/a>.\u00a0<\/span><\/p>\n

The government usually combats inflation in real estate by increasing mortgage interest rates, but prices continue to rise regardless. So what comes next? Will inflation cause the market to cool down? Will house and rental prices drop or rise? What does this all mean for homebuyers, sellers, and renters? Let\u2019s find out.\u00a0\u00a0<\/span><\/p>\n

Redfin does not endorse any of the agencies or services mentioned. Redfin strongly recommends that consumers make independently-informed financial decisions that are right for their situation.<\/span><\/i><\/p>\n

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What is inflation?<\/span><\/h2>\n

Inflation is the increase in prices over a certain period of time, such as rising home prices or the cost of goods. This means your dollar will not go as far tomorrow as it does today. Many <\/span>experts and governments<\/span><\/a> consider inflation a key part of a healthy economy when used alongside other economic tools. Because of this, countries often build inflation into their long-term policies. For example, in the U.S., The Federal Reserve (Fed) aims for a <\/span>2% inflation rate<\/span><\/a> year over year. As the economy grows and adds more jobs, more money is available for everyone, and consumers acquire more spending power. In this healthy economy, a nation\u2019s money supply and economic growth should grow parallel over a long period. In other words, supply and demand should remain balanced.<\/span><\/p>\n

The <\/span>primary cause<\/span><\/a> of long-term inflation is when money supply outpaces economic growth. Too much money means that the nation\u2019s currency slowly loses value, leading to higher prices and slower economic growth. To combat this, monetary authorities manage the supply of money and credit. They also measure the price changes for various products and services to determine inflation rates.<\/span><\/p>\n

Inflation can balloon due to limited supply, production and distribution bottlenecks, or higher demand during a pandemic or natural disaster.\u00a0<\/span><\/p>\n

Types of inflation<\/span><\/h3>\n

When there is an imbalance between supply and demand, it can cause inflation, lowering consumers\u2019 purchasing power. The government measures inflation rates with the Consumer Price Index (CPI) and the Producer Price Index (PPI), which track the prices of a diversified set of goods for consumers and businesses. As the cost of goods goes up, they take the necessary steps to combat inflation.<\/span><\/p>\n

Three main factors influence inflation: demand-pull, cost-push, and built-in inflation.\u00a0\u00a0<\/span><\/p>\n