How Is The Inflation Slowdown Affecting The Housing Market?

Inflation has been a hot topic of discussion in the past year as families created budgets to combat rising costs seen across the entire retail industry. From gas to groceries, clothing to home supplies, it seems like nothing has been able to escape the grasp of inflation. According to The U.S. Bureau of Labor Statistics, inflation in 2022 reached a 40-year high, topping at 9.1% in June and lowering to 8.5% in July. As a result, homeowners and buyers have closely watched how this has impacted the housing market to determine their next move. Recently we've seen home prices decrease, mortgage rates increase to 6.3%, and the rate of home sales decline.

However, how will the housing market look once inflation finally begins to decrease? According to Knoema, inflation rates are expected to decrease to around 2.8 to 3.5% in 2023, which is still 0.5 to 1.8% higher than the 2% inflation rate the Federal Reserve was hoping to reach — a 2% inflation rate now doesn't seem feasible until 2025. As inflation rates continue to change, we'll be offering a rundown of what to expect if you're unsure how this will impact your ability to purchase a home.

The fight against inflation's impact on the housing market

According to Next Advisor, as inflation declines in 2023, so will mortgage rates. Experts believe mortgage rates will decrease and land somewhere between 3% and 7% — which are rates the U.S. was accustomed to before the COVID-19 pandemic. This, plus a possible decrease in home prices, will create a more affordable housing market for buyers. However, before we see prices significantly decrease, we have to wait for them to balance out.

"I would not expect a big drop in house prices, but more of a leveling," managing partner of wealth solutions at Carsons Group Jamie Hopkins said. "I don't think there's enough people who will be forced to sell in the next year that would drive prices down significantly. Home sales and inventory will slow down before we see a big drop in values." And although mortgage rates are expected to decrease, the housing market seems to be in a volatile state in 2023 as the Federal Reserve continues to combat inflation to reach its 2% goal. If they feel as though inflation is increasing again, we could potentially see mortgage rates back up at 9%.