Rising inflation influences three-out-of-four homebuyers

Roughly three-out-of-four homebuyers and sellers report today’s breakneck pace of inflation has impacted their plans to buy or sell in the coming year.

73% of homebuyers and sellers are taking today’s rapidly rising prices of goods and services, or consumer price inflation, into consideration when making their decision to buy or sell, according to a Redfin survey of U.S. residents who plan to buy or sell in the next 12 months.

The Consumer Price Index (CPI) measures consumer inflation through fluctuations in the price of goods and services. During the 2020 recession and pandemic, the index was low, but increased throughout 2021, disrupted by supply chain disruptions and labor shortages – which resulted in higher prices. The CPI was at 7.0% as of December 2021, according to the Bureau of Labor Statistics (BLS). For reference, the Federal Reserve (Fed) target for inflation is just 2%.

While 27% of homebuyers and sellers claim inflation has not impacted their plans to buy or sell, homebuyers and sellers react to rising costs in diverse ways. There has been an extensive effect on plans to buy. Of the potential homebuyers surveyed, high inflation has caused:

29% to delay plans to buy;
24% to accelerate their plans to buy; and
11% to cancel completely their plans to buy.

Of the potential sellers surveyed:

10% are accelerating plans to sell;
7% are delaying plans to sell; and
3% are cancelling plans to sell.

Rising inflation meets rising housing costs

Inflation can become a dangerous cycle. When inflation rises beyond the pace of wages, consumers use up a greater proportion of their paychecks on items needed for everyday life.

Rising prices will continue as long as:

demand remains high;
supply shortages continue; and
supply chain disruptions continue.

With little room left in many consumers’ paychecks, this leaves a shortage of wiggle room for anything outside of essential, everyday needs – food, rent, etc. This indicates many are having trouble saving up for a down payment.

Further, like goods and services, the price of rent continues rising beyond the pace of incomes throughout California. The more it rises, the less people can save up for things outside of the everyday essential realm.

Beyond inflation, employment remains low in California, even while rents rise. Over 700,000 jobs are still missing from California’s workforce as of November 2021.

Expect inflation to stick around into 2022 while the supply chain continues to adjust and demand subsides. Rents will likewise continue to rise alongside the ongoing housing shortage, increasing the burden on tenants and stunting future homeownership prospects.

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