Inflation is the general rise in prices for goods and services over time so each dollar buys less. In real estate, inflation (often called housing inflation) describes rising costs related to owning, buying, building, or renting homes—higher sale prices, increased rents, more expensive construction inputs, and rising taxes and maintenance expenses.
Housing inflation is driven by the same forces that push general inflation, but with real estate-specific mechanics:
From 2020–2022, low interest rates and expanded money supply increased homebuying demand. Many metro areas saw prices jump—homes valued at $300,000 in 2019 sold for $400,000+ by 2022—even when property condition and location were unchanged.
As inflation peaked, landlords raised rents to cover higher operating costs. In some cities average rents climbed 10–20% in a single year, straining affordability for renters.
In 2021 lumber prices roughly doubled due to supply-chain stress and demand, adding thousands to the cost of new construction and shifting pricing for resale homes as well.
Central banks raised rates to fight inflation. As mortgage rates increased from near 3% to nearer 7% in some markets, monthly payments rose sharply and some buyers delayed purchases.
| Group | Impact of inflation |
|---|---|
| Homebuyers | Pay more for homes; affordability worsens if mortgage rates rise. |
| Sellers | Can sell at higher nominal prices but may face higher replacement costs when buying another home. |
| Landlords | Can increase rents to cover higher expenses but risk tenant turnover if rents rise too fast. |
| Renters | Face higher rents and may need to find lower-cost housing or share living space. |
| Investors | Properties often appreciate with inflation (an inflation hedge), but borrowing costs and operating expenses also increase. |
Real estate is a common inflation hedge because property values and rents tend to rise with prices. Tangible assets like housing preserve purchasing power better than cash when inflation is high. Additionally, rental income can grow over time, matching or outpacing inflation—though rising interest rates and higher operating costs can reduce net returns.
