Already high home prices may increase further
If you’ve looked closely at the housing market over the past year, you probably know that housing prices have gone up. For example, according to the S&P Corelogic Case-Shiller National Home Price Index, home prices are projected to increase nearly 20% year-over-year in February 2022.
Since real estate is generally considered a durable investment, inflation may prompt more people to jump into the housing market. If this happens, the already existing demand-supply imbalance will get worse. As a result, the already high house prices may increase further.
or home sellers can cut prices
Alternatively, higher mortgage rates may force people to reconsider buying now. If demand softens, sellers may need to lower their asking price. We are already seeing this to some extent. According to Redfin, 13% of home sellers on its site cut prices in the four weeks through April 10, 2022.
Luck says, “This was the largest one-month increase in price cuts Redfin has seen since 2015.” However, a lot of homes are still selling for overpriced. In fact, Redfin says the average home still sells for more than its asking price. Therefore, we do not yet know in which direction the prices will go.
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Due to inflation, the prices of many construction materials are also increasing. According to bobvilla.com, “The cost of building materials increased by 31.3 percent from the beginning of 2020 to the beginning of 2022.” The source says that wood, steel and concrete are some of the common construction materials that now cost more. Even the finishing touches are expensive.
For example, the source says that prices for exterior paint, interior paint and architectural coatings are set to increase between 20% and 30% from 2021 to 2022. Therefore, building a new house is more expensive. Apart from inflation, supply chain issues and labor shortage are also contributing factors.
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