Inflation begins to beat house prices – a collapse in sight?

After tightening family budgets, inflation begins to beat home prices as higher interest rates increase the cost of financing a home purchase.

According to a recent report by real estate data firm Clever, between July 2022 and January 2023 house prices were 2.5% below inflation. This is a significant reversal from the previous 30 months, when median home sales prices rose 42% from $329,000 to $468,000, three times the rate of inflation. during the said period.

Some hot spots like San Francisco, Portland, and Salt Lake City saw outright price declines, while others like Sacramento saw slight increases but well below the rate of inflation.

What comes next, another crash to come or just another slight fix?

Steve Davis, CEO of Total Wealth Academy, is in the emergency camp.

“If you live in reality, you know this is not going to continue. The stock market and real estate are cyclical,” he said. International business time. “It’s not if they’re going to crash. It’s when. But the good news is it’s not whether they’re going to recover. It’s when. The stock market crashed and has rallied 18 times in the past 100 years. Pretty much the same for real estate. The difference is that real estate makes money in both bull and bear markets if you know what you are doing. “

Mortgage expert Erica Davis is in the fix camp.

“With over two decades of experience in the lending world, I am confident that these conditions are temporary and a correction could be on the horizon,” she said. “A market correction is a significant drop in house prices that can occur after rapid growth.”

Davis notes that a correction is different from the bursting of a housing bubble.

“A correction is a normal part of the housing market cycle,” she explained. “Factors such as oversupply, rising interest rates and a slowing economy could trigger a market correction, which would ultimately benefit homebuyers who have been shut out of the market. alarming as this may sound, there is still hope for those considering investing in real estate.”

Anita Verma-Lallian, CEO of Arizona Land Consulting and Real Estate Developer, is an optimist, saying home prices may continue to outpace inflation due to low home inventories.

“Our current inventory and supply of homes is minimal,” she told IBT. “The cost of construction has risen excessively, putting additional pressure on homebuilder prices. Until additional inventory is added to meet housing demand, home prices will continue to rise. be high and can outpace inflation, and we’ll see that when interest rates start to decline.”

Still, Douglas Elliman, vice president of Dottie Herman, is skeptical of recent home price data.

“Comparisons since the start of 2020 or at the height of the pandemic are not fair comparisons because the market was in uncharted territory and sales went crazy,” he said. “You can only really start comparing the market today with the end of last year, because that’s when things started to have some sense of normalcy.”

Meanwhile, Oliver Rust, product manager at independent inflation data aggregator Truflation, disputes the figures in the Clever report.

“Housing has been one of the biggest challenges for American citizens in recent years, with house prices and rents far outpacing the rate of inflation,” he told IBT. “That will soon start to reverse, however. Truffle research has shown that the BLS housing numbers are out of date by about nine months due to too small sample sizes and infrequent data collection. .”

“While we and other independent housing data providers have been measuring a decline in prices since July, the BLS numbers have been steadily rising. So if we are correct in our assumptions, we will start to see that drop reflected in the April inflation reading,” Rust added. .

The US housing market could finally cool after rebounding strongly in 2020 as the wider economy suffered from the Covid-19 pandemic
The US housing market could finally cool after rebounding strongly in 2020 as the wider economy suffered from the Covid-19 pandemic

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