With our 24/7 news cycle, we are inundated with stories that just keep repeating causing nightmares and constant worry. How many times have you heard the word “inflation” in the last 6 months? Inflation is a loaded word with many implications. This article is focusing on the relationship between inflation and the home you own.

What is inflation? According to the Washington Post, inflation refers to a decrease in the purchasing power of money, reflected in an increase of the price of goods and services in the economy. So, as inflation ticks up, every dollar you earn loses value and therefore impacts your ability to spend.

I remember being a rookie real estate agent in 1977, in my fourth year in the business. Interest rates rose from 7% to 19.5%! I’m sure some of you recoil when I mention that period. The surprise for me was that homes were still selling! That is proof certain that owning a home is a high priority for young first-time buyers. Prices fell drastically as interest rates reached their peak. The CEO of Security Savings and Loan at that time told me that he was certain that interest rates would never dip below double digits in my lifetime! Never say never!!

Supply and demand are the other factors that will determine whether or not prices rise or fall, no matter what the market. That is a fact of capitalism. In our current market we have both a lack of inventory (short supply) and rising interest rates. Both of these factors have and still are contributing to rising real estate prices which is good for anyone owning real estate. The reason rising interest rates are favoring home sellers at this time, is because the rise has recently begun and increasing from historic low interest rates. This has created an even more urgent need for first time buyers, as they want to buy before interest rates price them out of the market.

Based on my 44 years in my real estate practice, there may be a bubble on the way. I can’t predict when or how impactful, but I know from experience that real estate values are cyclical, meaning that at some point, prices will fall. This will be determined by the buying public who at some point will decide that they will retreat to the sidelines and wait until affordability is restored. My feeling is that prices will increase this year in 2022 about another 6%-8%, and then flatten out and begin a decline. I can’t say how far this price decrease will go. No one can. There more factors affecting values of homes other than inflation or supply and demand. There is the human factor…fear. Fear is unpredictable and can arise from that 24/7 news cycle with no shortage of subjects that can cause sleepless nights. For instance, if a war starts (I pray not) somewhere in the world, that can affect the stock market and then seeps into all market prices. There can be natural disasters and many other factors out of our control that can cause panic and price declines.

Best advice, if you are thinking of selling in the next 2 years, don’t wait too long. The spring market is always the most prolific season for selling, meaning that is when we see the greatest turnout of would-be purchasers of homes. By waiting much longer, you risk selling at the peak, and kicking yourself for not acting sooner. If you are thinking of moving into a senior community, I can tell you they are filling up as so many waited for Covid to be over and are now deciding it is time to make the move. The same goes for senior apartments and condominiums. Inventory in those markets is shrinking. Therefore, if you want the peak price and reserve an apartment or condo, do it now! If you are thinking long-term and know you will not be making a change of address for several years, then just know that when it is time to move, you’ll be subject to all of the factors previously mentioned. We always hope for timing a move perfectly, but that would require the ability to see into the future which none of us truly possess.