Tuesday, 21 November 2017

What Effect does Inflation Have on House Prices

Written by Posted On Tuesday, 14 November 2017 11:57

There is a strong correlation between inflation and the price of any goods, products or other entity that have a limited supply. This includes properties, with the rate of inflation having a direct effect on the value of homes. For anyone considering buying or selling a house, current, past and future inflation rates need to be factored in to get a real sense of the value. The effect of inflation on house prices remains important in today’s housing market.

What Causes Inflation?

Inflation is a general rise in price levels, where the prices of many goods and services such as food, transport, housing and more all increase in the overall economy at a similar time. There are two main types of inflation; demand-pull and cost-push. Demand-pull inflation happens when demand for goods and services rises quicker than what is being produced. While cost-push inflation is when prices of the production process increase rapidly, such as wages and the price of materials. Both of these cause an overall price increase in an economy, hence inflation.

Rising Property Values

UK house prices have been on the rise for many years now. Even when there is speculation that the market is going to weaken once again, there will be at least a small upturn. Recent reports claimed in the three months to September 2017, UK house prices rose by 4%. Across a similar period, UK inflation hit 3% up from 1% a year earlier. A fall in the pound’s value is believed to be the main cause, which also makes house prices more expensive for potential buyers.  

House Price and Inflation Correlation

Rising house prices means that many people who have been homeowners for ten or more years will have seen their property greatly increase in value. The same is true for anyone who has bought a new home in the last decade too, however as inflation has grown massively as well it may have actually decreased in real terms. For example, between 2006 and 2011, house prices rose by 11%, but inflation grew by 17%. This means that even though both have increased, one has grown more than the other, so that the difference between the growths has actually resulted in a financial loss.

Interest Rates

Interest rates also has a big effect on house prices and currency prices, which is why keeping on top of forex news is also of great importance for house buyers and sellers. When interest rates are low, buying a home can be a lot more affordable and result in a rise in buyers. With increasing demand and a constant (or even falling) supply, the prices of homes will increase. Should interest rates increase though, the number of homebuyers will likely fall as it becomes more expensive, which can also see inflation drop.

Inflation and interest rates have an impact upon house prices. So, if you’re looking to buy or sell a property in the near future, it is worth monitoring what they are and predicted movements, as it may make more financial sense to hold off until later on. 

Listing Additional Info

  • State: New York
  • Address: 2419 Owagner Lane Seattle, WA 98106
  • City: Buffalo
  • Zipcode: 14210
  • SOLD: no
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