Housing Inflation...Is It A Bubble?

Inflation? What inflation? Surely you don’t believe your lying eyes! Let’s look at the numbers and sort this out.

The most apparent sign of inflation is seen at the gas pump. Fuel prices have soared since the beginning of the year. That in turn has resulted in increased pricing for many goods because it costs more to take goods from point A to point B. Here’s an insight into the economy; businesses pass increasing costs whether it be transportation or taxes on to consumers (you). But there’s another sign of inflation and that is the cost of housing.

Strictly speaking inflation relates to the money supply. When the Federal Reserve prints money, which they are doing at record levels, the result is more dollars chasing fewer goods. Perhaps you’ve noticed, housing prices have escalated. Generally, there are fewer homes for sale than usual. Even though the Federal Reserve is inflating the money supply they’ve continued to keep interest rates extremely low. It’s easier to borrow more because these low interest rates will keep payments down. This is a classic example of more dollars (loans) chasing fewer goods (houses).

The Case-Shiller National Home Price Index indicates home prices in major cities nationwide rose 19% year over year as of July 1. Since 2006 home prices nationwide have increased 41%. Is this a bubble soon to pop?

Many economists, especially those tied to real estate firms, say no:

“…Zillow economist Chris Glynn said too much demand and not enough supply means the housing market can’t tumble overnight.  But the double-digit price hikes won’t last forever.

“We’re seeing signs that the market is beginning to cool just a little bit, and by cool I mean house price growth is slowing, not that prices are going to decline,” Glynn said.” - Marketplace, 08/31/2021

According to the National Association of Realtors it is millennials with good credit scores driving this market. 

At VALoansMN we continue to offer millennials and others great rates at these historically low interest rates. Be prepared if you enter the housing market. Let Brad arm you with a pre-approval letter which will strengthen your offer to buy a home in this hot housing market.

It doesn’t cost anything to talk and talk can sometimes help you make the right decision in such an important step toward home ownership or refinancing.