Former mayor of the City of Columbus and commercial real estate investor Mike Eisenga comments on whether or not increasing inflation will harm the United States housing market.
Mike Eisenga, entrepreneur and commercial real estate investor, is not the only one who has noticed the climbing costs of homes and nearly everything. In May of 2021, there was a five percent increase in inflation of goods and services compared to May of last year, meaning things cost five more percent presently than they did a year ago.—
“During inflation periods, hard assets tend to attract the most money, and real estate is one of those hard assets,” mentioned Michael Eisenga.
A spike of inflation has the capability to further fuel the housing market, which then leads to demands escalating as investors look to real estate. At times of inflation, real estate is seen by most as financial protection if not benefit as its value rises with inflation and is a leveraged asset.
However, inflation also tends to spark higher mortgage rates. The talk of inflation can motivate more people to act on the record-low mortgage rates of today. More buyers on the prowl can boost a higher-priced and more competitive housing market. Thus, inflation tends to cause housing costs to rise with it.
Housing is an excellent asset to have when inflation hits. When purchasing real estate, the buyer provides a down payment upfront, usually around twenty to thirty percent of the home’s cost. Inflation’s price increase causes house prices to elevate as well, which means the value of a home rises not based on the down payment amount but based on the cost of the property. As the value of a house increases, so does the value of a down payment on that house.
With the positive comes the negative, and there is a negative effect that inflation can have on the housing market. The negative impact comes when inflation affects the interest rates on borrowed money. High-interest rates often scare away people from borrowing as much money as they would when inflation is not taking place due to high-interest rates making money more expensive to borrow. Individuals buying homes may steer away from borrowing money altogether or find that lenders are abiding by stricter standards for lending. Higher interest rates causing fewer people to borrow money means a decrease of buyers on the housing market. Fewer buyers on the housing market can lead to a reduction in housing prices.
The strength of an economy plays a significant factor in the housing market, too, as some economies generate an increase in income with inflation, making it easier for individuals to afford higher-priced services and goods.
For more information about Mike Eisenga or how inflation affects the United States housing market, visit Eisenga’s personal website www.michaeleisenga.com.
About Mike Eisenga
Michael Eisenga is a commercial real estate investor, entrepreneur, and proud father of three boys. His wide range of skills includes commercial real estate investing, property management, assisting living facility operation, leadership, strategic planning, public policy, and community outreach.
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