by Amar REALTOR® | February 4, 2022 8:41 am
With inflation rates rising to nearly 7%, many are concerned about managing their finances most wisely and whether buying real estate is the best option in an inflationary period.
Keep reading for a summary of what experts say about the affections of inflation on the Bay Area housing market.
It’s no secret that the past year’s inflation rates have been higher than usual. With a target rate of 2.5%, rates had remained at or below 2% since 2012 until last year, when they spiked to 7%.
Many consumers are concerned about how this affects the cost of living and what will happen to the real estate market.
The Bay Area has long been a hot real estate market, with an extreme imbalance in supply and demand. Experts have no reason to anticipate a slowing of orders as inventory remains low. Even with the expected rising interest rates, the need for homes in the Bay Area will continue to outpace supply significantly.
Short-term inflationary periods do not generally significantly impact mortgage rates. This relates to multiple factors: mortgage lenders anticipate the next 15 or 30 years, depending on the mortgage term.
Dennis Brand, vice president of growth for Mynd, says, “Thirty-year mortgage rates reflect what the market thinks rates will be over the next ten years. People don’t expect 6 percent inflation to last the next ten years.” Many experts forecast that the Fed will see inflation rates back closer to the 2.5% target next year, so there is no reason to expect massive changes from mortgage lenders.
Nearly everyone knows the rising cost of homes nationwide and in the Bay Area. This growth in housing prices preceded inflation, which is to be expected because the value of a home is far more dependent on supply and demand than inflation.
The pandemic sent many families searching for a new home base in a suburb. This wave of new demand for housing in suburban markets significantly impacted housing costs.
Inflation effects that impact housing costs include rising building material costs and labor shortages.
Buying real estate is promoted as a hedge of protection against rising inflation rates. By purchasing a home in the Bay Area, you reasonably anticipate that this large asset will grow at a rate equal to, or more likely faster than, inflation rates.
Some experts call real estate a refuge during a season of inflation in America. Investing in real estate during an inflationary period has multiple advantages, including:
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