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Fannie Mae Economic Group Shines a Spotlight on what’s causing the housing market inflation problem in the country
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t is about time we started talking about housing and housing reform seriously! It will take a wave of inflation to convince the government that the housing policies they’ve long advocated for are the real cause of the problem we are suffering from. For a long time now, bad policies and zoning restrictions that do not make any sense have led us into this situation where home prices are rising at an unprecedented rate. A report by the Fannie Mae Economic Group says that the fast-rising housing prices have fueled the largest increase in inflation since the financial crisis of 2008. 124
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THE RELATIONSHIP BETWEEN HOUSING PRICES AND INFLATION There is a symbiotic relationship between the housing market and the inflation measures. What you need to know is that any consumer good that is limited in supply, will influence inflation either positively or negatively. In this case, the home fits perfectly in this category. There are different factors that come into play and affect the prices of homes and one of the most prominent factors is interest rates. When the interest rate is low, people are enticed to buy homes leading to increased demand. If assuming that the supply of homes remains constant and the demand increases, certainly, the prices will go up and this is exactly what is happening in the country. Therefore, we can expect inflation to rise. Currently, home prices are up 15 percent from last year and the situation with rent is getting even worse; tripling for the first six months of 2021. And while Fannie Mae Economic Group believes that inflation acceleration could be considered temporary or transitory, pressure in all sectors of the economy will likely last into 2022 due to lagged effects from the skyrocketing prices of homes. THE POWER IS NOW MAGAZINE | AUGUST 2021
