Today we’d like to give you an inflation home affordability perspective you may not have thought about. These days everyone is talking about how expensive housing is. But is it really? Yes, home prices have gone up, but that doesn’t tell the whole story.

Inflation Home Affordability Perspective
Inflation Home Affordability Perspective

We are including a graph, and there is a lot going on in this graph. Let’s break it down. In 1989 the Keller Williams research team took the national average price of a car, a home, wages, and the cost of a mortgage for that average home.  They then went back and adjusted each for inflation. Here is what we found.

Of course, all four went up in price. But after adjusting for inflation, the cost of a mortgage, even at today’s prices, went down 24.02% You might ask, how can this be?

The answer is mortgage rates are lower than 1989 which is making housing affordable. We have other graphs that show in 2021 16% of the average home buyer income went to paying their mortgage. Back in 1989 it was 24%, so home affordability is better than it was back in 1989. This suggests there is more room for price appreciation if rates do not rise.

What if Rates Rise?

What happens if rates do rise? That eats into home buyer affordability and can damper price increases.  If they rise enough, it could put negative pressure on home pricing. In the coming weeks we will post another graph that shows where home prices are today compared to where they should be on the curve.

The forecast we pay attention to suggest home prices could rise nationwide about 9% this year. However, home prices are out over their skis and could ultimately bounce back if they expand too much from here. A lot will depend on interest rates. Expect the Fed to raise their rates a qtr. point to half point in March. Most experts now see a qtr. point hike, but I would not be surprised to see the half point rise. Many financial analysts are expecting the economy to pull back the 2nd half of the year. One way or the other, inflation will be pulled back whether through a slowing economy or continued interest rate hikes. Therefore, I believe the Fed may want to act faster now than having to continuously raise rates later.

Nobody knows what the Fed will do. They should have moved sooner and had they we might not have need to raise as much in 2022. Of course, many mistakes have been made not just by the Federal Reserve. A lot of people are responsible for this drastic inflation.

We are not here to assign blame. We are simply here to look at how we got here, how we think they may address it going forward, and what that means for the local real estate market.

Call Us Before Prices Peak

If you are a homeowner and your home is not working for you, you might want to call us 239-310-6500. Do not wait for prices to peak. If timing the market is your goal, you have a 99% chance of not getting that right. You will only know months afterward if you timed it perfectly.  Even if you miss it by a few percent, you are still doing well. Remember this, when word gets out that prices topped and are heading down, buyers turn off.

No buyer wants to buy in a declining market, just like nobody wants to catch a falling knife. Some people must buy, but the ones that don’t will continue to rent and wait for prices to come back down. When this happens, they will have no mercy on sellers. Sellers did not care that they put in 20 offers on homes and got none while prices were going up. When the market reverses, buyers will have no sympathy.

If you’d like to check your value online without speaking to us, you can at Not only will it give you your home’s value, you can also check to see your value each month and see if it is appreciating or declining.

Always call Sande or Brett Ellis at the Ellis Team at Keller Williams Realty. We look forward to helping you get Top Dollar for your home!

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