Any time inflation spikes, the housing market is going to feel it. It will impact people who are buying homes, and it will also affect consumers and investors who already own homes. However, experts almost unanimously agree that the increase in inflation and interest rates does not mean a drop in home prices or values. Here’s what investors should know.
A Housing Market Slowdown is More Likely than a Crash
Many investors, homeowners, and potential buyers are very concerned about the potential for a complete housing crash. Inflation in the United States is on the rise, but it isn’t just an American issue – it’s global. The inflation is being fueled by interruptions in supply chains, the war between Russia and Ukraine, and the COVID-19 pandemic rebound. Things are more expensive, which means people have less to spend. As a result, potential buyers are putting their purchases off, and this will continue to slow the housing market.
Changes Since 2008
Many people – and especially investors – worry about another significant crash like the one that occurred in 2008. Though inflation and recession were indeed driving factors, there are protections in place now that didn’t exist then. Back then, it was easy to get a mortgage because lenders did very little to verify that borrowers were able to make their payments. These days, there are far more protections in place, and people who aren’t ready for homeownership simply cannot buy a home. It’s also important to note that homeowners in the US have record amounts of equity, so even if prices do start to drop, that equity is there to protect them.
How Inflation Will Affect Home and Property Prices
Home prices won’t just bottom out as inflation continues to increase. Rather, the rate at which home prices grow will slow down. Supply is still somewhat low compared to demand, so while prices will keep rising, they won’t rise as quickly. A seller who listed a multifamily property might have had 15 offers back in 2020; in 2022, that seller will have fewer offers because fewer people are ready to buy. Investors who want to continue to buy and sell can continue to do so safely, though they should expect fewer offers – and it may take a little longer to sell properties than it did a couple of years ago, too.
Real Estate Remains an Excellent Investment
Real estate continues to be one of the best and most profitable ways to build generational wealth. When you invest your money wisely, you can continue to expect excellent returns. When buying properties during an inflationary period, make sure that you are buying in locations that have strong local economies and boast year-over-year growth. These are the areas where, with time, the value of the property will continue to rise above and beyond the amount you paid.
In a nutshell, experts agree that while a housing market crash is not on the horizon, both homeowners and investors should expect a slowdown in price growth. It is still an excellent time to invest in homes, multifamily properties, and more, especially when you choose those properties wisely.