Inflation’s Effects on the Housing Market
Paul Passarelli ‘27
In 2020 and 2021, the housing market seemed untouchable. Rates were low - often below 3% in 2021 - and consumer confidence was high. With this, the high numbers of people relocating after the COVID-19 pandemic led to increased demand for housing, especially in Southern States. But now, with higher interest rates and lower demand for housing, the housing market is facing high prices and low sales rates.
Since the benchmark interest rate set by the Federal Reserve has reached a 22-year high, the housing market has significantly weakened over the past year. In October 2023, this phenomenon was depicted as existing home sales fell 4.1% from September and 14.6% since October 2022. Furthermore, the inventory of houses in October 2023 was the lowest October level since 1999, depicting the weakness of the housing market and the reluctance of homeowners to sell their homes, and homeowners to buy their houses.
While the housing market is facing homebuyers who do not want to buy because of the high-interest rates, the low sales rates are also caused by current homeowners who do not want to acquire a high-interest rate on their next home purchase after selling their current home.
With this reluctance to buy and sell in the housing market, the renting market is being faced with rent increases by large corporate landlords. As these landlords realize that their tenants are unlikely to move out of their rentals and purchase their own property, they are raising the rents paid by their tenants.
Even though mortgage rates are high, home prices have not yet fallen, as they are up 29% since January 2021, causing a significant rift in buyers and sellers in the housing market, further worsening the inflation seen in one of the most critical markets in the U.S. Economy.
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