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Inflation and the Housing Market: What Sellers Must Know

If there’s one topic on the lips of every major western country, it’s inflation. Inflation is on the rise, accelerating to an eye-watering 8.6% in May 2022 – that’s the highest it’s been in over 30 years.

So, what does this mean for you? For everyday Americans, it means your hard-earned dollars are worth slightly less than they were a year ago. If you head into the grocery store to get everything you need for the week, you’re going to have come out spending more than you would for the same store in 2021. Unfortunately, this trend extends beyond the grocery store into every other financial facet of your life.

Why is inflation increasing so rapidly?

Inflation generally experiences highs and lows cyclically, as world events impact the country’s finances and those of business owners. The past few years have been extraordinarily turbulent for all of us, which has had a major impact on the costs of goods and services.

The first major hit was the pandemic, which brought much of the world to a standstill, delaying the production of services, goods, and parts, which meant they were all in higher demand. We’re still seeing vehicle chip shortages today (June 2022) that were caused by the early months of the pandemic in 2020.

Logistical issues quickly followed the pandemic, which coupled with the increased demand for parts that were, essentially, on back order, drove prices up even further. Experts hoped to see major growth and return to normalcy in 2022, but Russia’s invasion of Ukraine threw a further spanner in the works. Suddenly, the US and its allies – many of which are more logistically affected by the war – have to find a way to fund Ukraine’s fight and find alternate sources of fuel and other necessities to avoid financially supporting Russia. All of these aspects, and others, mean that the cost of living rises.

What is the effect of inflation on the housing market?

Inflation has implications for everyone involved in the housing market, but we’ll be focusing primarily on what inflation means for sellers in this article.

Real estate is well-known as being a sound form of investment – it allows you to secure your money in a real, tangible asset that you can use, and will rise in value over time.

Historically speaking, real estate is a safe haven from the emotional ups and downs of the stock market. Most of the time, (even when people are losing their heads over their stocks and shares) the real estate market continues sailing steadily along, with only minor bumps in the road as other types of investments experience major highs and lows. This is good news for homeowners and real estate investors, but not such good news for buyers, who suddenly see their affordability drop.

The housing market has exploded over the past 2 years, with house prices in desirable areas climbing very rapidly. Typically, during turbulent times like these, those with money look to secure assets like housing, since they know it will give a better return. That means that while affordability drops, demand (generally) stays high.

What does that mean for you as a seller?

That means that for the time being, it’s a good time to sell, provided you have a more affordable home to move on to, otherwise you may find inflation has impacted your buying power as much as any other buyer, and you may find what you thought you’d be able to buy in the area is out of your budget due to the rise in monthly mortgage payments.

If you’re selling a property you don’t live in, it’s a great time to be a seller. You can make the most of high house prices. But, if you’re planning to move on to a bigger home with a bigger mortgage, or if you’re thinking of selling because you’re already finding your home difficult to afford, it will be in your best interests to make the move as soon as possible. Mortgage interest rates will likely continue to go up – and are already above 6% (as of June 2022). That means that your objective buying power will be less, even if you have more equity in your property.

If you’re planning to get another mortgage, the sooner you can get a good fixed-rate deal, the sooner you can relax. Yes, inflation will still affect other areas of your financial life, but it’s much easier to budget when you know your mortgage payment won’t increase by $100-$300 from one month to the next.

If you’re thinking of selling because the financial strain of maintaining your property has become too much with the other cost of living increases, you’ll also be best off making the move as soon as you can. House prices are high, but the market is starting to slow down after over a year of moving at break-neck speed. Selling now will ensure you get the most for your property and avoid the rising costs, such as an increase in your mortgage and energy bills.

When will the real estate market cool off?

House prices are unlikely to drop drastically like they did back in 2008, but we are starting to see the number of buyers chasing properties returning to a more normal number and are expecting the market to balance out. Of course, this is a blanket statement, and does not and cannot apply to every home in America – there are always areas where there’s less demand. If you are selling in an area that has seen prices rise but there’s normally less demand, you have even more motivation to sell soon before the number of potential buyers outnumbers the homes available, in which case house prices may stagnate or even drop.

It’s unlikely we’ll see inflation rates drop until 2023, and as we well know, something could happen to delay that further. If you’re planning to sell, you’ll be better off moving as quickly as possible to get the most for your home and avoid rising mortgage rates.

If you live in Massachusetts and you want to sell as soon as possible, we’re here to help. We’re a cash home buying company and we buy properties in as-is condition, allowing sellers to secure their dream property before someone else does, or move on with their lives without the burden of an expensive property weighing on their shoulders.

We offer no-obligation best cash offers on any property in Massachusetts, so to find out more or request an offer on your home, click here.

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