According to Lawrence Yun, chief economist of the National Association of Realtors and contributor to Forbes, rising inflation will soon affect the housing market. The economy, inflation and real estate all go hand in hand.
“Inflation is slowly warming, up by 1.1% through the first half of the year, compared to near-zero inflation seen in the latter months of 2015. It’s been a gradual increase, and the inflation rate is still well below the 2.5% average annual price gains of the past 25 years. However, underlying trending factors strongly suggest higher inflation in the second half of this year and into 2017,” Yun wrote of recent inflation trends.
He discussed how inflation affects housing. Rent increased 3.8 percent in June. This was the fastest pace since January 2008. Housing prices are influenced by this inflation as well.
“Nationwide, home prices have been rising at around 5% to 6% this year, on top of the strong 20% gain that occurred in the three years prior. And home prices will certainly not be falling given the shortages of inventory of homes for sale in many parts of the country,” Yun wrote.
While inflation drive home prices, other parts of the housing market drive inflation. This is because housing weighs 33 percent on the consumer price index. Housing starts are below the national average.
“Going forward, a major driver of inflation will be related to housing,” Yun notes. “With inadequate new housing construction, both rents and home prices will easily outpace the general inflation. … Housing costs, moreover, weigh a hefty 33 percent on the overall consumer price index, compared to 14 percent weight for food, 7 percent for energy and 6 percent for transportation.”
Inflation and real estate have important effects on each other. For more information, check out Yun’s entire article. For information on Miami real estate, inflation, and more, contact one of our RE/MAX Paradise agents today.