Brady told me to skip the politics today, so let’s get straight to business…
The world has almost survived COVID-19, but now inflation threatens to severely hamper a fragile, slow-to-recover economy. As COVID caused shutdowns in manufacturing plants, due to the virus and the “unknowns” of its impact on the home building business, material costs have skyrocketed. This has been widely reported and caused many home builders to slow or stop construction, guarantee “listing prices” for only a week at a time, or add price-increase clauses to cover their unknown costs of materials. This past fall and winter, construction of speculative homes basically stopped, which severely lowered housing supply. Housing starts across the country jumped in April, but inflation threatens to kill this momentum as pricing increases are passed on to the consumer. How do we get a hold on this, and where does it stop?
Inflation by definition is “a general increase in prices and fall in the purchasing value of money.” It was reported this week that the US inflation in April was at a 13-year high. So basically, your money won’t go as far. Well, in case you haven’t noticed, when it comes to the housing market, your money doesn’t go very far now. Currently, our only saving grace is the low interest rates, which does INCREASE affordability. Lower home prices and higher interest rates equal the same affordability of higher prices and lower interest rates. So now what?
This is Econ 101, really. How high do prices go before the demand stops and prices come down? If inflation and interest rates keep rising, homeownership will be an unattainable goal for many people — if it isn’t already.
How will inflation affect rental rates? Well, if tenants are spending more on necessities such as food and gas, they will have less to spend on housing. Will inflation cause landlords to increase rent? Do the rental properties have a mortgage, and is it a fixed or adjustable rate? Will the landlord pass on higher payments, taxes, or HOA fees to the consumer? Landlords matter, choose wisely!
Inflation threatens to kill the American Dream of homeownership. Hang on tight, and let’s hope interest rates stay low for the short term until inflation gets under control. Lock in your 30-year mortgages at these rates and sign long-term leases.
See you somewhere soon. I’m hoping inflation doesn’t affect the price of wine!
Practice your short game and cheer for the DEACS!
Cheers,
Tori