Experts Say Rising Inflation Could Impact Housing and Mortgage Markets

Mortgage giant Freddie Mac released its month to month Outlook for February 2017 which looked at the potential effect that rising inflation could have on housing and home loan markets.

The outlook explains that rising inflation would significantly affect housing markets by driving home loan financing costs higher. Also, a huge tax reduction or major infrastructure bill could shock markets and cause a further increment to expansion.

But what should real estate agents be on the lookout for during the spring home buying season?

With higher inflation and increasing interest rate, there comes a negative effect on the housing and home loan markets bringing about home sales and mortgage originations drop. Notwithstanding, Freddie says while inflation will happen, it anticipates that development will be unobtrusive.

“Which course inflation takes over the next year will have important implications for housing and mortgage markets,” Freddie Mac Chief Economist Sean Becketti said. “On balance, the risks to higher inflation outweigh lower inflation, but in our estimation, most of the reflationary factors have already been baked into current interest rates and inflation is likely to increase only modestly over the next two years.”

Be that as it may, with home loan rates rising, the absence of housing inventory and home costs hitting new highs, affordability could be undermined and slow down home sales. Actually, the market as of now started moving far from refinance originations as home loan rates increase.

“As mortgage interest rates rise, larger, more expensive markets will continue to become more unaffordable, which will cause home price growth to slow,” Zillow Chief Economist Svenja Gudell said. “In particular, we expect coastal markets to show slowing price appreciation first, while the country’s more affordable, often inland and somewhat smaller markets – places like Nashville, Milwaukee and Louisville – will continue to see strong price appreciation.”

One expert further explains that the continued price acceleration is remarkable and even undesirable in the midst of rising interest rates.

“Why is it [home prices] accelerating?” said Lawrence Yun, National Association of Realtors chief economist. “The continuing shortage of inventory is leading to active competition among buyers. Other price trends for January, including NAR’s median sales price, is showing even faster gains.”

“Such a trend of price growth outpacing incomes is not healthy nor sustainable,” Yun said. “Only an increase in inventory can soften the price pressure. Any impediments to new home construction need to be re-examined and possibly removed soon.”

However, one website for real estate agents, Trulia, claims that expanding home costs are because of a solid real estate market.

“Driven in part by a healthy economy and near historic low inventory, the U.S. housing market is showing signs of picking up steam,” Trulia Chief Economist Ralph McLaughlin said. “Home price increases in December were the largest in two and a half years, and homebuyers should expect the quickening of price gains to persist this spring buying season.”

In any case, don’t expect a back off at any point in the near future. Truth be told, home prices will be much the same toward the end of 2017.

“Annual house price growth reached 5.8% in December according to Case-Shiller, the fastest pace of growth for 2½ years,” Capital Economics Property Economist Matthew Pointon said. “With market conditions set to remain tight, as faster income growth supports housing demand, prices are set to make a similar gain this year.”

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