How will inflation affect the housing market in 2022? (Podcast)

May 2, 2022 - 3 min read

How does inflation affect housing?

Inflation is at its highest point in 40 years and this has many consumers on edge — particularly those looking to buy a home.

Will inflation cause the market to slow down? Will home prices drop? With there be another housing crash?

“Those are questions that we’ve been receiving a lot on the lending side,” mortgage expert Ivan Simental said on a recent episode of The Mortgage Reports Podcast.

Fortunately, he said, a crash is unlikely. But a slowdown could definitely be in the cards.

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What inflation means for home buyers

Inflation will certainly have an impact on homebuyers, as well as consumers who already own a home. But the impact won’t be as drastic as many fear.

“Just because there’s inflation and interest rates are up does not mean that the prices of homes will go down or that the market is going to crash,” Simental said.

“Just because there’s inflation and interest rates are up does not mean that the prices of homes will go down.”

–Ivan Simental, Senior Loan Officer, Movement Mortgage

What it does mean, he said, is that affordability will decrease. For some buyers, that might mean buying a home at a lower price point. For others, it may mean putting off that home purchase entirely.

“Certain borrowers will be priced out of the market,” Simental said. “That is the number one thing that we are seeing with interest rates rising: People are getting priced out of the market and aren’t able to afford a house.”

We could see a housing market slowdown

Simental is clear in the podcast: A housing market crash is not on the horizon.

“Economists and people within the mortgage space are not predicting there will be a crash or even a dip in home values,” Simental said.

First, he said, there are many protections in place to prevent another housing crash a la 2008. In those days, “anyone with a pulse” could get a mortgage, and lenders did little to verify borrowers had the cash to support their payments. Now, underwriting standards are much stricter.

“It’s not as easy to obtain a home loan because now there are strict guidelines,” Simental said. “There are verifications we have in place. There are documents that we request that make it harder for individuals to become homeowners if they’re not ready.”

Homeowners also have record amounts of equity this time around. If prices were to drop (which is not expected), they’d have lots of equity to protect themselves and could still sell their homes to pay off their mortgages.

For all these reasons, Simental said, it’s likely inflation and rising rates will cause more of a slowdown in the market rather than a full-blown crash.

How does inflation affect home prices?

To be clear, high inflation doesn’t mean home prices are going to drop. It simply means that the rate of growth (how fast prices are going up) may slow. It also may mean, as Simental put it, “Instead of having 20 offers on a house, you’re now going to have 12.”

At the end of the day, buyers are going to feel inflation’s impact, but it’s unlikely to cause a crash or any drastic shift in the market.

If you’re hoping to buy a home and want to gauge how inflation and higher rates will influence your goals, get in touch with a mortgage professional in your area. They can help you crunch the numbers for your specific situation.

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Aly J. Yale
Authored By: Aly J. Yale
The Mortgage Reports contributor
Aly J. Yale is a mortgage and real estate writer based in Houston who has contributed to Forbes and worked for organizations such as The Dallas Morning News, PBS, NBC, and Radio Disney.