Two Possibilities for Inflation and Potential Impacts on Home Prices

Predictions for the future of inflation and housing prices are split into two camps: transitory and persistent. Consumers and firms are worried about inflation and its effects on housing prices, says John Burns Real Estate Consulting, and those who see the future going transitory see inflation as temporary. Those in the persistent camp say there will be some permanent inflation due to long-term trends. The Federal Reserve and the Biden administration reside in team transitory where inflation could end up pushing prices up, then having them tumble, pushing prices up and keeping them there, or home prices gradually and slowly rise.

A sharp and permanent increase in home prices and costs is certainly worth worrying about, as is a sharp increase followed by a decline in value. Inflation fears incentivize consumers to lock in payments sooner rather than later, especially if they’re confident they can stay and make payments long-term.

Team Transitory: Temporary Inflation Due to Demand and Supply Shocks Will Work Itself Out
We think the Fed and other members of “Team Transitory” are correct in that some of the drivers of high headline inflation prints over the last several months will resolve themselves over the short- to medium-term (6–18 months).

COVID and associated stimulus has created two simultaneous shocks to supply and demand for goods in particular:

Supply Shock
COVID-related restrictions made goods more difficult to manufacture and transport, and the resulting supply shortages for goods have allowed manufacturers to raise prices. However, supply will eventually catch up with demand as restrictions are eased and manufacturers ramp up to full production.

Lumber futures, for example, have fallen considerably and have wiped out their 2021 gains.
“The supply side [in some sectors] was caught a little flat footed” – Fed Chair Powell

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