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May Your Castle Newsletter


What Does Rising Inflation Mean for Real Estate?

Not only have high winds been relentless this month, but the winds of change may also be upon us. Anyone not living under a rock has probably noticed higher prices for gas, groceries, and just about everything else. Although the inflation rate was already on the rise at the start of the year, it spiked to 8.5% in March, fueled by supply disruptions caused by the recent war in Ukraine. That is the highest inflation rate in the U.S. since the 1980s!

What does rising inflation mean for the real estate market? One major impact is that it has had an adverse effect on mortgage interest rates. To combat steeper-than-expected inflation, the FED recently voted to take a more aggressive stance. As a result, we saw the most rapid increase in interest rates in the history of the U.S. mortgage market. As of April 12th the average interest rate for a 30-year mortgage in Colorado is at 5.5%, a huge jump from around 3.4% this time last year.


Competition Should Ease Slightly as Rates Increase What do these recent economic signals mean for buyers? Everyone’s situation is different, and it is best to talk to your lender about what makes the most sense for you, but here are the likely side effects to the market:

  1. More Inventory: Interest rate hikes have already led to an uptick in inventory in Metro Denver. The biggest rate increases happened in early April, so next month will likely be more dramatic in terms of inventory, but you can see that in March there was already a 5.2% increase in the number of new listings. With all this economic uncertainty, some sellers fear that the ship is sailing to make the most money possible for their homes, so they have opted to sell now before a supposed bubble bursts (Not likely.)

2. Less Competition: Higher interest rates mean that some buyers will be priced out of the market. Mortgage rates are expected to keep rising sharply based on current economic factors. If you are a well-qualified buyer and think you should wait to buy for interest rates to go back down to the record lows seen over the past couple years, that is likely a mistake.

3. Slower Home Price Growth: As you can see from our market snapshot graphic, home prices are up around 20% from this time last year. We do not expect home prices to decline; these price appreciations will likely only slow down because of the current economy. If you are a buyer who is waiting for home prices to go down to pre-pandemic levels, there is no evidence that it will happen this year. Unlike the housing crisis in 2008/2009, the current issues in the market are not artificial due to bad lending practices, etc., but rather from genuine high demand and a lack of supply that are putting upward pressure on home prices.


Rising Rates Panic Some Sellers Many sellers were shocked by the recent spike in interest rates and have decided that this is the best time to sell. Some fear that we are in another housing bubble like in 2008/2009 and that the market will come to a screeching halt. But as stated in the previous section, market conditions are radically different than they were back then. Home prices are expected to keep going up over the next year, although at a slightly slower pace. Prices are not expected to decline. Buyer demand is still strong, and inventory is still extremely low compared with a buyer’s market. Even if buyers are priced out of the market, you might get six offers over asking instead of ten. Still a good deal!

In the end, we advise against trying to time the market. All of these economic factors could change overnight, and no financial advisor has a crystal ball. Instead, do what makes the most sense in your situation. Need more space for your growing family? Looking to downsize? No matter what the case; if you do decide to sell your current home, this is still a strong seller’s market. If you would prefer not to sell, you will probably continue to build equity for at least the next year. Just know that the monthly payments could be higher on your next property, given the rapidly increasing interest rates.

“What does rising inflation mean for the real estate market?”

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