Inflation’s Effect on the Housing Market – What to Expect…

By Terry Mohler, Sales & Marketing Manager

Will 2022 bring balance to the housing market?

For roughly two years, people have used terms like unprecedented, historical, or just “hot” regarding the current housing market. More recently, many have added another term to that list – inflation. When people think of inflation, it can cause both frustration and concern. After all, the word means your money is being devalued, since most items and services are getting more expensive.

Just a few points to consider when anticipating inflation’s impact on the housing market:

  • New home listings are set to hit a 10-year high as owners see a market ripe to sell.
  • Historically low housing inventory creates value opportunities in competitive housing markets.
  • Rental demands are likely to surge as inventory supply chain issues continue to impact the housing market.

Now, let’s dig a little deeper into these three points and assess their possible impact on the market.

#1 New listings to hit 10-year high:

This year we should expect an increase in listings of existing homes that will coincide with an increase in listings of new construction. While homes continue to be purchased considerably over the value of the actual home, it is anticipated that home prices will adjust to reflect a more accurate home value. Some homeowners may be encouraged to “cash out” before that happens, getting the most they can for their homes before the market normalizes. There also may be a sizable group who find the current pressures of inflation too challenging and may list their homes to try to offset those challenges. Even with these additional listings, many believe that there will not be enough houses on the market to offset the current demand.

#2 – Current low housing inventory:

Historically, many will argue that real estate remains a profitable investment even during times of high inflation. Why? Just like everything else — scarcity creates value. Look at the value of an 1879s Morgan Silver dollar with an estimated value of $40.00. Yet the same coin minted in Carson City (CC) is valued at $1,700.00. Again, it comes back to scarcity- there were 9,110,000 made with (s) but only 756,000 made with (CC). It is basically the same in the housing market, as we expect to be undersupplied throughout the year. These conditions will only be complicated by the low housing inventory, continued supply chain issues, and material costs, all of which will undoubtedly influence the market.

#3 – Rental properties to be in heavy demand:

As people continue to sell off their homes, many are waiting for the market to slow before reinvesting in their next home. As a result, rentals will be in high demand and difficult to secure. In addition, actual rents are expected to increase by 8-10% during the year.


So, let’s look at how current inflation and other challenges will affect our market.

  • Overall, most people believe that, at a minimum, the pandemic is subsiding. These feelings may encourage more people to move back to urban living, where more properties tend to be rentals.
  • A strong labor market will cause many people to relocate for new jobs. These movers will need to find homes to purchase or rent.
  • As we all know, materials needed in home design are affected by inflation, including bricks, drywall, labor, and of course materials needed for kitchens/baths. As a result, these inflated costs are then passed on to the new home owner.
  • One of the biggest impacts of inflation is increasing interest rates. At the time of this blog posting, interest rates are sitting at around 5.25%, higher than they were, but still much lower than the historical average of 8%. As we have seen interest rates rise, some people are finding it challenging to finance new home purchases.

Recent data collected by RE/MAX estimates that there are approximately 4-6 million fewer homes available than needed to meet demands. While competition has slowed, it is still very much a sellers’ market. Many believe that while mortgage rates will continue to climb, they don’t anticipate much impact on reducing home prices.

There’s no question that inflation will have an impact on the kitchen and bath industry, as most people will hold their pockets a little tighter as prices sky rocket. Fortunately, however, when you consider people are selling their existing homes for record amounts, and the fact that there are millions of fewer homes on the market than needed, people will be looking to new construction or to making significant upgrades to newly purchased homes. This is good news for us and will lessen the impact of inflation for our industry over the remainder of 2022.