How does the rate of inflation affect the housing market ?
The connection is very complicated. Inflation usually causes the cost of almost everything to go up- but at different rates. When someone says we have 5% inflation- that means some things may have gone up 10% some others not at all. Interest rates on Mortgages usually reflect the investors expectation of future inflation over the next ten years or so. They want a return of more than the expected rate of inflation. The cost of homes reflect somewhat the cost of all the stuff that goes into building a house including the land and lumber and electronics and everthing else. The cost of insurnace on your house reflects that inflation also and so does the property tax. Plus- if the general population expects inflation to cause the price of homes and interest rates to rise in the near future a huge demand increase happens. People will buy lots of real estate as a hedge agaist the loss of assets caused by inflation- that will cause house prices to go up even faster than inflation. The “turn ar
