Inflation Part Deux: Gas Prices, Rate Hikes, and Real Estate, Oh My!

Hello Hampton Roads,

Gas Prices, Rate Hikes, and Real Estate, Oh My! 

The Inflation Monster rages on and we all feel it. It shows up everywhere--in our favoriate restaurants and shops, in utility bills, grocery stores, and at our gas stations! My brother in California just spent $140.00 to fill up his car with 21 gallons of gas! The cost of good and services is increasing--the dollar doesn't stretch very far. 

This is where the Federal Reserve comes in. The Fed was created to keep the economy prosperous and stable by keeping inflation under control, neither too high nor too low. When inflation is too high, the Fed raises interest rates and when inflation is too low, it lowers them. Raising interest rates discourages spending, cools off the economy, and attempts to tame high prices. Lowering rates encourages spending, heats up the economy, and may cause prices to increase. 

Inflation is currently at 40 year highs so the Fed is desperately trying to cool the economy by raising interest rates .75% (75 basis points), the highest rate increase in 27 years! We can expect more rate hikes until inflation abates. Increasing the benchmark rate makes the costs of borrowing more expensive--everything from credit cards, car loans, and home loans goes up.       

How will this manipulation of interest rates end? 

You can't count on that "softish landing" Mr. Powell talked about earlier--that's the scenario where rates get increased  while still maintaining growth--i.e., without tipping the economy into a recession. Other factors outside of the Fed's control like the war in Ukraine and China supply chain disruption throw a wrench in the plans. The problem with having only one way to control inflation is that it doesn't leave many options. Someone said (I wish I could remember so I can give that person credit), "If you only have a hammer, then everything starts to look like a nail."

Since this is a real estate blog let's talk about how this affects real estate!  

Hampton Roads is still in a seller's market with homes selling over the list price, but homes are starting to stay on the market a little longer. 

• Increased borrowing costs will increase mortgage rates, which are now in the 6's (remember in the beginning of 2022 they were in the low 3's).
• More buyers will get priced out of the market leading to less competition
• With lower demand, inventory will increase and high prices will drop some.

Is real estate still a good investment? It depends on your situation, but in general, yes! In an inflationary environment, real estate is a great way to preserve and even grow wealth. If you want to find out more about buying a home in today's market, I'm hosting a Free Home Buyers webinar and you register right here: https://freehomebuyerswebinar.com/

Thanks for Reading,

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If you're thinking about buying a home in today's market, you won't want to miss this upcoming Home Buyer's webinar! 💻😄