5 Reasons Rising Inflation Could Lead to Falling Housing Prices

Over the pandemic, the US government fought hard to avoid financial fallout and lower economic output by boosting the economy with stimulus checks and financial support measures.

However, that sent inflation out of control. On the plus side, here are five reasons why this could mean housing prices might be about to drop.

More Expensive Mortgage

The biggest reason for the link between rising inflation and falling housing prices isn't due to the inflation itself — instead, it's the reaction to the inflation. No government is happy to sit back and watch inflation destroy its country, so the Fed increased its fund rate recently.

When the fund's rate is higher, it affects banks, causing interest rates to rise and compensate, including mortgage rates. This discourages borrowing and spending, keeping inflation low — and possibly leading to deflation, resulting in lower house prices.

Reduced Demand for Houses

The pandemic saw a sharp rise in people purchasing properties thinking they had the perfect window of opportunity to get onto the property ladder or move house.

Several factors were behind this trend, and one was the extremely low mortgage rates — it seemed like the ideal time to take advantage of conditions while they lasted.

Smaller Pool of Potential Buyer

Higher mortgage prices are likely to reduce demand for houses directly — but rising inflation has increased the cost of living, meaning there's a lower number of people who can afford a home right now.

Figures show that wages have failed to keep pace with inflation, making buying a property more difficult for first-time buyers. The change means that demand is taking a hit from multiple directions.

Swipe up for more!

How Long After Buying a Car Can I Buy a House?

Applying for a Mortgage (Important Info + 6 Steps)

Discover more from wealthofgeeks.com