Inflation Is Beginning To Beat Home Prices – A Crash Ahead? – Dottie Herman

Inflation Is Beginning To Beat Home Prices – A Crash Ahead?

Inflation Is Beginning To Beat Home Prices – A Crash Ahead?

After squeezing family budgets, inflation is beginning to beat home prices, as higher interest rates are raising the cost of financing a home purchase.

According to a recent report by real estate data company Clever, between July 2022 and January 2023, home prices lagged inflation by 2.5%. It’s a significant reversal from the previous 30 months when median home sale prices rose 42% from $329,000 to $468,000, three times higher than the inflation rate over the said period.

Some hot areas like San Francisco, Portland and Salt Lake City experienced outright price declines, while others like Sacramento experienced slight increases but well below the inflation rate.

What comes next, another crash ahead or just another mild correction?

Steve Davis, CEO of Total Wealth Academy, is in the crash camp.

“If you live in reality, you know this will not continue. The stock market and real estate are cyclical,” he told International Business Times. “It is not if they will crash. It is when. But the good news is that it is not if they will recover. It is when. The stock market has crashed and recovered 18 times in the last 100 years. About the same for real estate. The difference is that real estate makes money in both the up and down markets if you know what you are doing.”

Mortgage expert Erica Davis is in the correction camp.

“With over two decades of experience in the lending world, I’m confident these conditions are temporary and that a correction may be on the horizon,” she said. “A market correction is a significant drop in home prices that can occur after rapid growth.”

Davis notes that a correction is different from a housing bubble bursting.

“A correction is a normal part of the real estate market cycle,” she explained. “Factors such as oversupply, rising interest rates and a slowing economy could trigger a market correction, ultimately benefiting homebuyers who have been priced out of the market. While this may seem alarming, there’s still room for hope for those considering investing in real estate.”

Anita Verma-Lallian, CEO of Arizona Land Consulting and Real Estate Developer, is an optimist, arguing that home prices can continue to exceed inflation due to low home inventories.

“Our current inventory and supply of homes are minimal,” she told IBT. “The cost to build has increased excessively, putting additional pricing pressure on home builders. Until additional inventory is added to keep up with the housing demand, home prices will continue to be high and can exceed inflation, and we will see this when interest rates begin to decline.”

Still, Dottie Herman, vice chair at Douglas Elliman, is skeptical about recent home price data.

“Comparisons from early 2020 or during the height of the pandemic are not fair comparisons because the market was in uncharted territory and sales went crazy,” she said. “You really can only start to compare the market today with late last year because that’s when things started to have some sense of normalcy.”

Meanwhile, Oliver Rust, head of product at independent inflation data aggregator Truflation, disputes the Clever report numbers.

“Housing has been one of the biggest challenges for US citizens for some years, with property prices and rents far outpacing the inflation rate,” he told IBT. “This will, however, soon begin to reverse. Truflation research has shown that BLS numbers on housing are roughly nine months out of date because of too-small sample sizes and infrequent data collection.”

“While other independent housing data providers and we have been measuring a decline in prices since July, BLS numbers have kept increasing. So if we are correct in our assumptions, we will start to see this decline reflected in April’s inflation reading,” Rust added.

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