We’ve seen huge increases in US housing prices over the past few years.
We know that housing markets go through boom-and-bust cycles.
How is inflation likely to factor into that this time?
On the one hand, higher interest rates are (from what I hear) slowing or even stopping further price increases in the housing market.
On the other hand, won’t the sharp inflation we’re experiencing throughout all sectors of the economy tend to prop up housing prices, at least for as long as it lasts?
There is a deep dichotomy in real estate. People buy a monthly payment and they sell a price.
At purchase time all you care about is “Can I get a mortgage at an affordable monthly payment that buys this house?” Interest rates matter massively in whether any given loan principal meets your payment threshold.
At sales time a few years later all you care about is “Is the sales price above my current mortgage balance? So I come out cash flow positive when I sell?”
The result of all this is every time inflation & interest rates spike we see the same effect: people who bought right long ago can sell readily & happily, whereas recent purchasers or those who overpaid grossly are trapped / screwed.
I believe inflation will have more of a bearing on new construction as opposed to existing dwellings.
Yet people who bought long ago are trapped paying outrageous property taxes and cannot afford to sell and move to cheaper areas without losing their jobs (despite work-from-home, many jobs cannot be done remotely).
Higher mortgage rates are slowing down buying, putting downward pressure on house prices. Where I live the hot housing market earlier this year has cooled off dramatically, presumably because of mortgage rates going up. The available housing stock still remains very low which helps to prop up prices. Some sellers are even starting to drop the price on their houses to sell them, but new houses are being built and the cost to build new houses has skyrocketed so when those houses hit the market it will be interesting to see how well they sell.