Real Estate Trouble: Inflation Heating Up in 2024?

We're not quite at Taylor Swift levels of excitement yet, but when inflation reports drop, they draw a lot of attention these days.

Why do we care so much?

As families, rising prices are having a huge impact on our quality of life.

Just one trip to the grocery store and it makes you want to cry. 😭

From a real estate perspective, higher inflation means higher rates which effects the market in a variety of ways.

Last week, we got a big update: the Consumer Price Index (CPI) report.

Let's take a look at where things stand..

Is Inflation Heating Back Up?

The way you measure something can totally change the story and, therefore, your actions.

Think about health.

Your answer completely changes how you go about achieving good health.

Is it a specific body weight, miles you can run, or daily calorie count that gets you "healthy?"

Part of the challenge with inflation is properly measuring it. 📏

If you want to go deeper on the topic, check out the book "The Inflation Myth."

💡 Big picture: inflation looks be to leveling out and/or starting to turn back up.

And it's doing that above the Fed's 2% target (which is made up btw). 

I've got 3 common ways of tracking inflation in the graphic above so we can get a broader point of view on the topic.

Sticky CPI is up to 4.5% as Core CPI stayed the same at 3.8%. 

We'll get the updated Personal Consumption Expenditures (PCE) report (the Fed's preferred measure) in a couple weeks.

As you might expect, this news pushed interest rates higher and cast doubt on if/when the Fed will start cutting rates.

For reference, we went from a 65% chance of a rate cut in June down to 33% after the CPI report was released. 😳

Finding Opportunity

You might feel helpless thinking about this topic. 😔

We certainly can't control the Fed or our Government.

Here's my recommendation:

Focus on making sure you have a general understanding of the big picture and how that relates to the real estate market.

To that end, this is a story about interest rates, home sales, and home prices.

As inflation increases, so do rates and vice versa (all else held equal). 📈

Rising rates usually put the market on ice (especially present day as we're coming off such abnormally low rates).

What I mean by that is fewer people buy and sell given the higher costs (compared to before), resulting in a much lower number of transactions. 📉

Prices are a little trickier. They tend to go up either way.

As rates go up, we generally see price growth level out.

Take a look at a long-term chart and you'll see what I mean:

In most cases, costs to buyers are rising over time - it's just a matter of how much. 😲

As I've been discussing for the past year, I believe we are going to be dealing with higher inflation for longer than we think.

Many of the forces driving lower prices over time are reversing.

This leaves the Fed is stuck between a rock and a hard place - trying to balance lower inflation without crashing the economy.

I'll be going over this more in the upcoming MarketPulse 360 to help us navigate the issue and manage client expectations.

No matter what the reports say, keep your focus on finding the opportunity to grow and add value to your clients.

Don't let the headlines designed to scare you keep you from executing your plan every day. 💪

You've got this and I'm here to help if you need some! 🚀

Dr. Alex Stewart
Founder

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