Understanding Inflation: A Closer Look at Its Impact in 2024
Inflation. It’s the small-talk buzz word you hear just about every time someone looks at a menu these days. But the legitimate, nerdy definition is “the gradual increase in the prices of goods and services over time”. And it just so happens to have a profound effect on the housing market. As we explore inflation’s impact in 2024, it’s essential to understand how rising prices can shape housing trends and dynamics.
What is Inflation?
Inflation is a persistent increase in the general price level of goods and services in an economy over a period of time. It erodes the purchasing power of money, meaning that the same amount of currency buys fewer goods and services than it did before. While moderate inflation is generally considered healthy for economic growth, excessive inflation can lead to instability and economic downturns.
When Did Inflation Start?
The concept of inflation has existed for centuries, but modern methods of measuring and managing it began to take shape in the early 20th century. With the development of economic theories and statistical tools, governments and central banks gained better insights into monitoring and controlling inflation rates.
What Does Inflation Look Like in 2024?
In 2024, inflation remains a prominent economic concern, with fluctuations driven by various factors such as supply chain disruptions, geopolitical tensions, and shifts in consumer behavior. In the United States, inflation experienced a notable surge in 2023, reaching levels unseen in decades. While the Federal Reserve implemented measures to address inflation, its effects continue to reverberate through the economy.
Impact on the Housing Market
Inflation has significant implications for the housing market, influencing both homebuyers and sellers:
- Rising Home Prices: Inflation can contribute to rising home prices, as the cost of materials, labor, and land acquisition increases for builders and developers. This can make homeownership less affordable for prospective buyers, particularly first-time buyers or those with limited financial resources.
- Interest Rates: In response to inflationary pressures, central banks may raise interest rates to curb spending and stabilize prices. Higher interest rates can lead to increased borrowing costs for homebuyers, affecting affordability and potentially dampening demand in the housing market.
- Asset Inflation: Inflation can also lead to asset inflation, where the value of real estate appreciates rapidly due to increased demand fueled by investors seeking to hedge against inflation. This can create speculative bubbles in certain housing markets, posing risks of price corrections and market volatility.
Spring is the most popular time to buy a home, and there are some unique opportunities to buy a home NOW, despite interest rates. At United Faith Mortgage, we’re a family-run company that has a very important Direct Lender Advantage. That basically means we use our own money and make our own decisions within our own walls. There’s no middle man. For you, this often means a shorter turnaround time and a better rate… which can save you monthly and lifelong money. If you’re in the market for a new home, we’d love to have a (truly) no-pressure conversation about your options.