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We’ve all felt the effects of inflation. The cost of goods and services have gone up, sometimes dramatically. Groceries cost more now, shopping for furniture and bedding is scary, and the cost of used cars has also gone up. The question is. What about housing? While inflation can be somewhat unpredictable, we can look at a few key ways it’s been known to impact buying or selling a home. This article looks at how inflation affects the housing market.

What is inflation?

Inflation is the increase in the prices of goods and services over time. The level of inflation is determined by the broader impact of higher prices and is measured through a few different indexes. The most common index is the Consumer Price Index (CPI). CPI looks at the average cost of living, including transportation, food, and medical care. CNBC lists the 10 things that cost more in 2022. It helps to identify periods of inflation and how it influences the affordability of the cost of living.

Ultimately, a rise in inflation means a decrease in purchasing power. The dollar doesn’t go as far as it did before. Deflation, on the other hand, comes with an increase in purchasing power as prices of goods and services drop. So does inflation affect the housing market? YES IT DOES. Inflation affects the housing market.

Supply and demand

The law of supply and demand examines the relationship between buyers and sellers. This can be applied to the housing market. If the number of buyers needing homes remain constant and there are less homes up for sale, it means there is a Seller’s market. This means that each home for sale becomes more valuable and therefore buyers will pay more for it. This is what happened in 2020 when the pandemic and record low interest rates made buyers want to move at a time when sellers were fearful of moving. Now, interest rates have gone up and there are more homes for sale so the buying frenzy has gone away. Still, inflation will keep the prices of homes high, at least for now. When this happens, houses tend to sit longer on the market and their prices are sometimes reduced. Still, for sellers, the value of homes tends to go up in value year over year. Homeowners will still likely sell their home for more than they bought it for.


Since inflation can be somewhat unpredictable, it’s not always easy to determine when exactly rates will rise or fall. Currently, in Northern Virginia, buyer demand fell as inflation set in, home prices continued to go up, and interest rates crossed the 6% line. The type of home they expected to buy was now out of reach. Ultimately, homeownership is still a highly valuable investment for a variety of reasons.

Why homeownership is valuable

As mentioned earlier, inflation causes the cost of all goods to rise, thereby impacting the general affordability of the cost of living. Gas prices rise, groceries cost more, the cost of materials are higher, and housing costs increase. It’s not necessarily a one-to-one relationship, but inflation has broad reach. Higher mortgage rates might deter people from their pursuit of homeownership, leading more people to look into rental options. However, rent is always fluctuating.

The price you pay for a rental will continually be susceptible to the current economic market, so you’ll rarely have a long-term fixed monthly payment. According to NPR, the national median rent price was over $2,000, the highest ever.

On the other hand, when you buy a home with a fixed-mortgage rate, you’ll have one steady payment that will not change even as inflation increases or decreases. The house would also appreciate over time, meaning the value of the property will increase. Any initial down payment ends up being worth more since that number was determined by the cost of the house and the mortgage rate when purchased. Homeownership is an investment, but it’s well worth it. And in the long term, mortgage rates as of August 2022 are still lower than the historical average of 8 percent.

Inflation isn’t forever

The good news for both buyers and sellers is that inflation doesn’t last forever. It eventually must end, otherwise money would continue to be devalued which would have a greater negative impact both nationally and on individuals. So for the benefit of everyone, you can trust that inflation will decrease over time. An exact date is not known. According to NextAdvisor, inflation is not going away soon. And according to Forbes, “As the supply chain improves and interest rates rise from the hikes by the Fed, inflation is anticipated to decrease slightly. Consumers will start to see a reprieve in energy costs such as paying less at the pump and will shell out less money for food.”

Bottom Line

Homeownership remains one of the most prominent American dreams. “Nearly three-quarters of Americans place owning a home above career, family and college as a sign of prosperity”, said this New York Times article. And it’s for good reason. In most cases, it’s a better financial decision to live in your own home and consider it a long-term investment. Even as inflation affects the housing market, there are several ways of making homeownership a reality.

Questions/Concerns? Please contact me.

Also see the latest Market Update – August 2022

Denise Fuller
Tel: 703-881-6947
[email protected]