The Impact of Inflation on the Housing Market - Affordable Interest Mortgage

The Impact of Inflation on the Housing Market

Share This Post

Why is inflation at a 40+ year high? Partly due to COVID-19 and its effect on the economy, along with supply and demand issues. And it’s had a significant impact on the housing market, as well. You might be wondering when inflation will peak or how a recession could impact your home value. But don’t worry, AIM has your answer.

How Does Inflation Affect the Housing Market?


The simple answer is inflation drives interest rates. When inflation goes up, rates go up with it. And when inflation drops, interest rates will drop as well.

Inflation, at its core, is too many dollars chasing too few goods. There are too many buyers but not enough inventory. And when too many people request an item, the price for that item rises.

We all understand the old adage “Supply vs Demand.” With COVID, the country locked down on many activities and changed the way we were living. We had less places to go and spent more time at home.

So, we did not have a demand for many previous activities. As COVID restrictions loosened, we started spending that money again, which is helping the economy recover.

CPI (consumer price index) is going up, and shelter costs will start to go down. As this happens, inflation will come down as well.

When Will Inflation Peak?


Let’s look at how the Feds view inflation.

When you see the inflation numbers, you will see that they are YOY (year of year), which is the monthly inflation over the most recent 12 months, divided by 12.

If you look back at the last 12 months our average inflation rate is 7%. In January 2022, it was 7.5% and rose to 9.1% in June. By November 2022, it had decreased by 6.5%.

The Feds started raising rates in September 2022. Raising the Fed’s Fund rate is designed to slow down spending and lower the inflation rate. It does not affect long-term mortgage loans directly. Those are affected by 10 Year Treasuries.

I also believe that you will see inflation continue to decline over the next 3-4 months, as the YOY average of inflation is going to continue to decrease, especially after June 2023.

The housing market has slowed but not to the degree that many naysayers state. The housing market is not in a crash. Home values are continuing to rise and there is still a shortage of homes available to meet the demand. The country has less than a 40-day supply of homes to meet the demand.

To be real, it has slowed the double-digit appreciation and brought us back to a more normal buyer’s-seller’s market. I believe this will continue through 2023.

Are We In a Recession Yet?


Are we in one, is one coming, and what effect will it have on mortgages and our way of life?

Some are saying we are in a recession, others disagree because of our unemployment numbers. Either way, we are all much more aware of our spending, our jobs, and how to protect our finances.

We believe the word recession will be talked about more and more as we go through 2023. I don’t believe, with the current decline of inflation, the continued low unemployment and current supply and demand issues, the recession will last through mid/end of 2023.

If this is the case, we can expect the 5% mortgage rate by late 2023.

What Happens to Mortgage Rates and Home Values During a Recession?


If we enter a recession, you can expect your mortgage rates to come down.

But what does this do for home values? The good news is home values rise after recessions.

This is due to supply and demand, again. Builders build new inventory (supply), and the demand comes from new homebuyers (typically young adults moving out of their parents’ homes).

During the Great Recession (2007-2009), we witnessed a housing bubble. This housing bubble was caused because there was too much inventory and too little demand. There weren’t enough new homebuyers, yet builders kept building new homes.

This isn’t something we’re likely to see during this recession. Builders have learned from 2008 and aren’t building as many homes. As well, the rate of new homebuyers is much higher than it was in 2008.

In this case, there is more demand than there is supply. So, when mortgage rates come down, new homebuyers will come looking. But because the inventory is low, the market will become competitive.

Home values will only go up as demand rises and mortgage rates fall.

Why Now Is the Time to Buy a Home


When rates were in the 2s and 3s, there were loan programs that were not being offered. But they are now.

One of them is a 3/2/1 Buydown. This is a loan where you purchase a new home and by using this loan, your rate is in the 3s the first year, 4s the second year, 5s the third year, and 6 the remaining year. This is not an ARM and does not have a prepay penalty.

For example, if you purchase a home now with as little as 3% to 10% down, you may qualify for this 3/2/1 buydown. Your monthly payments, depending on the loan amount, would be $500 to $700 a month less for the first year, $400 to $600 less the second, and so on.

In addition, if rates do come down in the next two years to the 4s, like many expect, you can refinance to that rate and the remaining funds that are available with the 3/2/1 buydown can be used to pay for the refinance.

The forecast for home value over the next ten years is 5.5% appreciation per year, which is a great rate that can generate wealth over time.

Many people believe they are saving money when they rent, but in the long term, buying is an investment that will make you money. Whether it’s rent or a mortgage, you’ll have a monthly payment, so why not invest in the option that grows your wealth in the long term?

For those of you wanting to purchase a home but have little money down, there are some new Down Payment Assistance Programs in which you may qualify for up to $25,000 in DPA assistance, at a lower rate than your first mortgage fixed rate.

For more information about any of these or other First Time Home Buyer Programs, DPAs, or other ways to pay off your home faster by using a Simple Interest Loan, call us at 720-895-0500 Affordable Interest Mortgage.

Disclosures:  NMLS 298191, Regulated by Dora, Equal Credit Lender AZ NMLS MB1021756, WY MBL 4594

More To Explore


05/28/24 Your Money Matters Mortgage Insights

05/28/24 Your Money Matters Mortgage Insights   In this episode of Your Money Matters, I talk about mortgage options for First-Time Home Buyers. First, most people don’t know the details of the definition of what constitutes a “First Time Home Buyer,” so I provide the information and the nuances. I also provide the answers to


05/21/24 Your Money Matters Mortgage Insights

05/21/24 Your Money Matters Mortgage Insights Don’t panic about Mortgage Interest Rates! I can help! Hello, I’m Kurt Rogers, Managing Broker at Affordable Interest Mortgage with the latest info from the Mortgage World. My Hot Topic of the week for 5/21/24 is captured in this 8-minute segment of the MORTGAGE INSIGHTS Podcast episode – I

Scroll to Top