Housing Market Inflation: What You Need To Know
Author:
Kevin GrahamApr 3, 2024
•8-minute read
Updated: January 2024
Inflation is a hot button topic across the economy, but there’s no doubt the effect is more visible in some areas than others. Home prices are certainly a high-profile example. Knowing more about housing market inflation will help you figure out the best ways of dealing with it. So will a few tips.
What Is Inflation And How Does It Affect The Housing Market?
When we speak of inflation in an economic sense, we’re referring to rising prices relative to the value of the dollar. When inflation rises, costs are higher for the same amount of goods and services than they were previously. The housing market is no different. In general, if prices are rising across the economy, prices for housing will also rise.
However, there is a good argument to be made that the housing market is at the forefront of national inflation. After all, housing is a big portion of Americans’ monthly expenses. At the same time, there are some indications that it’s not as severe a problem as it used to be.
Below, you’ll find a historical graph of the price index included with the Personal Consumption Expenditures (PCE) report put out by the Bureau of Economic Analysis. This is the Federal Reserve’s preferred metric for inflation when it looks to set the target range for the federal funds rate, which serves as the basis for interest rates across the financial markets.
The Fed typically excludes food and energy because these prices are notoriously volatile. When this core number is looked at, it was 3.7% on a quarterly basis.
The Current State Of The Housing Market And Inflation
One major indicator of inflation within the economy is the consumer price index (CPI). Although it’s not the Fed’s preferred metric, this breaks out shelter and a couple of components of housing cost in a way that PCE doesn’t.
In the latest reported data, the CPI has