{"id":398,"date":"2011-11-30T17:23:09","date_gmt":"2011-11-30T21:23:09","guid":{"rendered":"http:\/\/dankrell.com\/blog\/?p=398"},"modified":"2012-11-11T11:22:48","modified_gmt":"2012-11-11T15:22:48","slug":"will-inflation-help-the-housing-market","status":"publish","type":"post","link":"https:\/\/dankrell.com\/blog\/2011\/11\/30\/will-inflation-help-the-housing-market\/","title":{"rendered":"Will inflation help the housing market: how real estate is affected"},"content":{"rendered":"

by Dan Krell
\n\u00a9 2011
\nDanKrell.com<\/a><\/p>\n

\"Homes<\/a>Many people believe that as inflation increases, home values decrease. The argument put forth is that as purchasing power decreases, so do the value of your assets.\u00a0 However, some economists say that it is flawed thinking to assume that housing, like other goods, decline in value as inflation increases.<\/p>\n

Collin Barr reported that Yale economist Robert Shiller (coauthor of the Case-Shiller Home Price Index) has spent years collecting data that indicates \u201cthat house prices over time tend to rise more or less in step with inflation\u201d (fortune.com: Why house prices will keep falling; March 29, 2011). That\u2019s all well and good, except that home prices far exceeded the rate of inflation during the recent \u201cbubble years;\u201d and is reported as still having a 25% gap from baseline. So, unless we see an increasing rate of inflation, some believe that home prices drop another 20%.<\/p>\n

Brian Summerfield, Online Editor of REALTOR\u00ae Magazine, describes (in an April 5th Realtor.org blog post) a scenario of how inflation can lift the current housing market. By highlighting affordability, he explains the cost of housing is currently cheaper to own a home (compared to renting). Additionally, as inflation creeps up and eats more of the family budget by decreasing buying power, the a person\u2019s housing budget will be pressured by rising rents and buying a home will be increasingly more attractive.<\/p>\n

Of course, Mr. Summerfield\u2019s scenario is hinged on several \u201ccaveats\u201d: interest rates will have to remain relatively low (he says no higher than 7%); implementation of \u201caccessible\u201d 30 year fixed mortgage programs; housing supply will have to remain low; and no additional economic crises.<\/p>\n

In several Realtor.org blog posts, Lawrence Yun, Chief Economist for the National Association of Realtors\u00ae, discussed inflation and housing. In an April 18th post he explained that \u201cUnexpected inflation\u201d does erode savings, however actually benefits borrowers. Additionally, in a September 15th post reporting that housing starts are the lowest since World War II, Yun explains that some investors are returning to undervalued real estate as a hedge against inflation. Since new housing is not on track with population growth, some believe there will be a housing shortage that will cause increased demand in coming years.<\/p>\n

\"House<\/a>The reality is that although there is a relationship between home prices and inflation, it does not signify causality. In other words, although one may have an effect on the other, housing and inflation are independent. Even in Brian Summerfield\u2019s scenario, he is cautious to provide conditions to bring his vision to reality. And no one has talked about the affects of stagflation.<\/p>\n

When talking about a recovery, the typical homeowner should remain cautious- especially in espousing a view that a home is an investment vehicle. Even though our consumer oriented society has encouraged people to pay for their lifestyles with their home\u2019s equity, it\u2019s now widely decried as irresponsible.<\/p>\n

In light of the current economic conditions, many potential home buyers are becoming more pragmatic as well. Even though the basic benefits of homeownership include affordability, community, etc, many potential home buyers view owning a home as anchor that will keep them tied to a specific area. And in a time when jobs are scarce, many people want the freedom of mobility in case they have a career opportunity elsewhere.<\/p>\n

Will inflation help the real estate market? We will only know in hindsight.<\/p>\n

More news and articles on \u201cthe Blog\u201d<\/a>
\nThis article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 28, 2011. Using this article without permission is a violation of copyright laws. Copyright \u00a9 2011 Dan Krell.<\/p>\n","protected":false},"excerpt":{"rendered":"

by Dan Krell \u00a9 2011 DanKrell.com Many people believe that as inflation increases, home values decrease. The argument put forth is that as purchasing power decreases, so do the value of your assets.\u00a0 However, some economists say that it is flawed thinking to assume that housing, like other goods, decline in value as inflation increases. … <\/p>\n

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