Inflation’s affect on the market
AM 570 Podcast
Column from The Wave
How’s the market? Are prices rising or falling? When will things change? These are some of the questions I’m asked all the time. Truth be told, there’s no real way to accurately answer these questions objectively. In fact, the best answer I can give before offering my personal opinion is to remind folks that real estate is hyper-local and statistics seldom offer local insights or answer individual questions. The national market is comprised of countless micro-markets that break down from regions, states, cities, counties and neighborhoods. Even within neighborhoods, values can vary on a block-to-block basis. While statistics can provide trends and overviews, they can neither determine an individual’s home value, nor can they tell you whether or not it’s the right time to sell. Price fluctuation in the market is the only guarantee of things to come. At any given time there are many causes of price fluctuation but I think the biggest one of them all right now is inflation.
We don’t need published statistics to tell us that everything we buy today requires more dollars than it took to buy the same item a few moths ago. It’s a given that everything always costs more around NYC, especially housing. So when our dollars are noticeably devalued as rapidly as they’ve been lately, it only stands to reason that it’ll take more of them to get a house now than it would’ve took a few months ago. However, the real estate market is always presented to the public in an incomplete supply/demand paradigm where rising prices are automatically assumed to be a sign of a strong or strengthening economy. On the other hand, hyperinflation can have a devastating effect on the real estate market. With present mortgage interest rates hovering at only 3% for a 30-year loan, folks can presently afford to pay a little higher now than before without feeling it too much. But what will happen when the rates soon start climbing as a result of inflation? People’s paychecks will not go as far after paying their monthly bills thanks to the rising cost of everything else. Current supply/demand trends in local areas will always affect the real estate market, but inflation always causes interest rates to climb; As a result, housing prices will be greatly affected, exponentially so in areas where the demand is already waning.
Local knowledge is key when trying to forecast market conditions, but macro statistics can still be helpful when kept in context. For example, according to the National Association of Realtors, currently home sales in The South account for a whopping 44% of all national sales while the North East only accounts for 12%. That 3 to 1 ratio is even more staggering considering the population differences between the two regions. Also worth noting is that locally, the average home prices in Brooklyn and the Bronx have fallen since this time last year while prices in Queens, Staten Island, Westchester and Long Island have risen. Remember however, all of these counties have many different real estate markets within their borders where supply and demand will have a tremendous effect on prices. Still, prices will always affected in some way by inflation.
When inflation hits, everything is affected, especially housing. The big question is will the local housing prices rise, fall or plateau as a result? I wouldn’t be surprised if certain neighborhoods see prices climb even higher as a result of inflation while other neighborhoods see prices drop and maybe even bottom out. No person, or statistic, can say for sure. What we do know is that inflation is here right now and volatility will soon follow.
