Inflation and the housing market in 2023 are inextricably linked, with both positive and negative implications for homebuying as data from the Federal Reserve Bank and latest market trends have shown. Inflation rate is a measure at which the prices of goods and services rise over time.
The Consumer Price Index (CPI), which tracks changes in the cost of goods and services basket typically purchased by households, is a key indicator used to gauge inflationary pressures. It provides eye-opening insights as to how inflation impacts (and dampens) consumer spending habits and overall economic health.
But as high inflation affects cost of living, including housing prices and expenses, it directly influences homebuyers’ purchasing power and home sellers’ sales. As such, property buyers and investors must understand how inflation, as reflected in the Consumer Price Index, interacts with the housing market to make smart decisions when venturing into real estate investments.
Inflation and Real Estate
Inflation can drive up home prices and property taxes. It makes it more difficult for potential buyers to afford a median price home for their personal sanctuary. It can be especially challenging for rookie homebuyers looking to buy their first home but may have limited savings and therefore need to take out a larger mortgage to buy a house.
On the other hand, inflation can also stimulate the economy and regional housing markets by encouraging consumers to buy real estate before prices rise even further. Interest and mortgage rates and home availability can influence the effects of housing inflation on the market in 2023.
If interest rates rise in tandem with inflation, it may become more expensive for buyers to obtain a mortgage, reducing the number of homes they can afford. Simultaneously, if the supply of housing market crash, inflation can drive up prices even more, making it even more difficult for buyers to find a starter home that’s well within their budget.
What are the correlating effects of inflation and housing market?
Despite what the effects of inflation poses, there are still some positive effects of inflation in homebuying.
1. Home prices increase
One of the positive effects of inflation, despite its bad reputation among common Filipinos, is that it can lead to higher property values and appreciation. It benefits both homeowners who have the prospect of selling their homes for a higher prices in the future, and real estate investors who could leverage their equity for further property acquisition.
2. Sense of urgency and demand
Inflation can create a sense of urgency and demand in potential buyers. It encourages them to purchase a real estate property before prices escalate to the point that buying a home becomes a luxury than a necessity. This increased demand may cause home price increases to rise, which may benefit existing homeowners’ buying power.
If the value of their home rises, so will their equity, allowing them to accumulate wealth and potentially sell their homes for a higher price in the future.
3. Impact on housing costs
Home prices rise in tandem with the cost of goods and services especially for remote work. This can be especially difficult for first-time homebuyers, who may have limited savings and may require a larger mortgage with raising interest rates to purchase a home. Furthermore, rising interest rates, which frequently accompany inflation, can reduce the number of home buying that buyers can afford.
4. Availability of home builders
The availability of home builders can also influence the rates hikes on home buying. Inflation’s rapid rise can drive up prices even further if the supply of homes is limited, making it even more difficult for buyers to find a home within their budget.
On the other hand, if there is a plentiful supply of homes, it may help to keep home prices in check and make it easier for buyers to find a home within their budget with lower mortgage rates.
5. Buyers’ purchasing power
Inflation can also have an effect on buyers’ purchasing power and housing market. When the home values of money fall due to inflation, it becomes more expensive to the housing market.
This can make it difficult for buyers to purchase a home, particularly if their income is not rising at the same rate as inflation. Buyers may need to save more money or look for ways to increase their income to help offset the impact of inflation.
6. Psychological consequences for buyers
In addition to financial consequences, inflation can have many factors and psychological consequences for buyers. Inflation can create a sense of urgency among potential buyers, encouraging them to buy before prices rise even further.
This is especially true if buyers believe that inflation will continue to rise. Buyers may be more likely to wait and see if home prices fall if inflation is low before making a purchase if inflation is low.
Effects of location on inflation and real estate
It is important to note that the effects of inflation on the housing market vary by region and even by city. Inflation may be driving up home prices in some areas posed for growth while having little effect in others.
Buyers should research local housing market inflation, including recent trends in home prices, interest rates, and supply of homes, to understand the effects of inflation on the housing market in a specific area, such as those in emerging locations in Greater Manila Area (GMA) and regional areas nationwide.
Inflation is a critical factor that influences the housing market and homebuying decisions. While it can have both positive and negative impacts, it is important for potential homebuyers to understand its effects and how it can impact their finances and their ability to buy a home.
Tips on homebuying during inflation peak
As a practical solution, aspiring buyers should also consult with a financial advisor or real estate professional to help them understand the effects of inflation on the housing market and make informed decisions about home purchases. Based on the local market conditions and the buyer’s specific financial situation, they can provide valuable insights, analysis, and recommendations.
The decision of potential homebuyers to purchase a home is a personal and financial one that should be made with careful thought and research. Understanding the positive and negative effects of inflation on homebuying can help buyers make informed financial decisions and achieve their homeownership goals.
The effects of inflation in homebuying are complex. It’s important for potential homebuyers to understand these impacts and consider them when making a decision about whether to buy a home.
Factors such as interest rates, the availability of homes, personal financial situation, and the broader economic context should all be taken into account when evaluating the impact of inflation on homebuying. Additionally, buyers should consider its long-term impacts and how inflation affects their finances and purchasing power over time.
With proper research, analysis and guidance, buyers can make informed decisions and achieve their goals of homeownership, even in a market impacted by inflation. Remember, the key to success in the housing market is to understand the factors that drive home prices and to make smart, informed decisions about buying a home.
What is the forecast of real estate in the next 5 years?
The real estate market forecast for the next five years is subject to change and can be influenced by a variety of economic, demographic, and political factors. However, the real estate market is expected to continue to grow, albeit at a slower pace, over the next five years.
Factors that are expected to have an impact on the real estate market over the next five years:
1. Economic growth
A healthy real estate market is usually associated with a strong economy. Demand for housing is expected to remain strong if the economy continues to grow and unemployment rates remain low.
2. Interest rates
Interest rates are critical in the real estate market and will have a significant impact over the next five years. If interest rates remain low, it is expected that housing demand will remain strong and prices will rise.
3. Demographic trends
The aging of the baby boomer generation and the growing popularity of urban and practical living, are expected to have a continuing impact on the real estate market over the next five years.
4. Technology
Over the next five years, the continued advancement of technology, particularly in the areas of virtual reality and online real estate platforms, is expected to have a significant impact on the real estate market.
Inflation and the Condominium Market
Meanwhile, if you’re eyeing to invest in the thoughtfully designed spaces of vertical homes, the condominium is not spared from the adverse effects of rising inflation. Condo developers will feel the need to increase their property’s prices to keep their profit margins.
Essentially, this makes these compact spaces less budget-friendly. Growing inflation can also result in mortgage loans being less attainable for aspiring condo buyers. That is because lenders may raise interest rates to compensate for the reduced buying capacity due to inflation. Higher interest rates equals higher mortgage payments.
But overall, the real estate market is expected to grow over the next five years, with the rate of growth influenced by the aforementioned economic, demographic, and technological factors. However, keep in mind that real estate market conditions can change quickly, so it is critical to stay informed and consult with a professional before making any decisions about buying or selling real estate.
Real estate can be a good and practical investment option for those with the financial means and the willingness to take risks. For condo buyers, Asterra offers top-quality condominium units at cost-effective rates, not to mention exclusive amenities such as a gym, clubhouse, sports court, open greens, tranquil landscapes, and pool area, all of which are loved by present condo dwellers.
Real estate can be a valuable and profitable investment and provide the best value for money. But there’s no denying it that it is also fraught with risks and uncertainties, from changes in the real estate market, rising costs of living in a growing cityscape, interest rate fluctuations, and changes in local and national economic conditions.
If you’re considering investing in real estate, such as value-packed condominiums for compact living, you should do your due diligence and conduct extensive research, review market trends, and consider factors such as inflation and demographic trends that may impact the real estate market in the near future.
Whether you’re part of millennial professionals or overseas Filipinos wanting to build their wealth in a property investment, you should likewise consider your long-term financial goals, risk tolerance, as well as your ability to manage and maintain real estate property. Get in touch with a real estate agent or an Asterra representative for your condo property investment inquiries.
