Home prices rose 2.4 times faster than inflation since 1960s, study finds. What that means for homebuyers (2024)

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Home prices rose 2.4 times faster than inflation since 1960s, study finds. What that means for homebuyers? ›

According to a study by Clever Real Estate, housing prices in the US have risen at 2.4 times the pace of inflation since the 1960s. "If home prices had merely kept pace with inflation, the median home would cost only $177,500 today — compared to the $431,000 it actually costs," Matt Brannon, the report's author, said.

Home prices rose 2.4 times faster than inflation since 1960s, study finds. What that means for homebuyers. If home prices increased at the same rate as inflation since 1963, the median price of a typical house in the U.S. would be $177,511, according to a new research report by Clever, a real estate data company.

During inflation, the cost of buying a home can increase substantially. This makes it harder for first-time homebuyers to find affordable housing solutions and forces all potential buyers to consider whether or not it makes sense to navigate current market conditions at all.

Home prices could rise

"Higher inflation means higher mortgage rates, which in turn means lower housing affordability conditions," says Robert Diez, Chief Economist at National Association of Home Builders.

Experts overwhelmingly say that the housing market isn't going to crash anytime soon. The last housing crash helped cause today's lack of supply, which is what's keeping prices from falling. Mortgage rates, however, are expected to fall this year. This will help make homeownership more affordable.

Generally, homeowners, especially those with mortgages, benefit from inflation. The value of homes tends to increase faster than inflation, so their investment does not lose value.

Inflation brings most benefits to debtors because people seek more money from debtors in order to meet the increased prices of commodities.

Key takeaways

Lenders are hurt by unanticipated inflation because the money they get paid back has less purchasing power than the money they loaned out. Borrowers benefit from unanticipated inflation because the money they pay back is worth less than the money they borrowed.

As noted, inflationary pressure often leads to increased demand for homes and thus drives prices up. If you plan to sell your home, you're benefiting from a seller's market, and those high prices work in your favor.

Does inflation include rent? ›

“Rent of primary residence” measures how much people are spending on rental housing and accounts for about 8 percent of the total inflation index. The “owner's equivalent rent” metric, the one that estimates the rental cost of owned housing, makes up a much larger 25 percent.

Fixed debts, such as mortgages, become more manageable in hyperinflationary environments. Since repayment amounts and interest rates remain the same, the rapid increase in wages and prices makes it easier for borrowers to pay off these debts, often leading to a decrease in the real burden of the debt.

Home prices are not included in the CPI, as the purchase of a home is considered an investment rather than an expenditure by the BLS. But rents and a concept referred to as "owner equivalent rents" are included.

Even if a recession doesn't affect you directly, if your area is hard-hit, that could have a serious effect on the local real estate market. Fewer people with the means to buy means a lower chance of homes selling, which could keep homeowners from listing and decrease your options as a buyer.

Buying a home this year, particularly in early 2024, might mean you're able to beat the rush, as the market could get more crowded if or when rates drop further. Waiting, however, could give you more options to choose from as supply improves, along with the potential for increased mortgage affordability.

Most experts do not expect a housing market crash in 2024 since many homeowners have built up significant home equity. The issue is primarily an affordability crisis. High interest rates and inflated home values have made purchasing a home challenging for first-time homebuyers.

Prices have grown about 20% overall since 2020, according to an analysis by the California Legislative Analyst's Office based on the most recent consumer price index data.

Homebuyers Are Starting to Revolt over Steep Prices Across US | Hacker News. Good. Infinitely low interest rates were not sustainable and helped fuel the speculation in the housing market. I think a trend people don't realize is that there is a one/two punch: Interest rates are high and that slows house buying.

What can cause increases in cost of living? Unfortunately, the cost of living is increasing around the world, with rising prices affecting nearly everyone. Some of the likely factors affecting this spike are climbing energy prices, supply chain disruptions, and high demands on limited supplies.

While inflation is inevitable and part of a normal economic cycle, there is an ideal rate the Federal Reserve (the U.S. central banking system in charge of managing inflation) is constantly striving toward. Let's dig into the ideal inflation rate and what the Fed does to get us there. The ideal inflation rate is 2%.