The October 2021 Inflation Report from the BLS showed America registering it’s highest inflation rate (+6.2%) in over 30 years. Many are now concerned that the US economy and Housing Market is entering a new stage of elevated inflation – and perhaps hyperinflation – that could cause big problems.
Many are also concerned that higher rates of inflation mean that the US Housing Market will continue appreciating, and that home prices will get even higher. Perhaps there is now US Housing Bubble and there will be no Housing Crash?
However, examining historical data from Fannie Mae shows that inflation does not necessarily mean the Housing Market will get more expensive. In fact, quite the opposite – there are many instances of inflationary episodes helping to crash overvalued Housing Markets.
New York, Los Angeles, and Boston are three cities where the Housing Market has crashed each of the last two times the US experienced an inflationary surge (1987-1991 and 2004-2008). Why? Well, when, a Housing Market is already overvalued – well above the prevailing rate of inflation, a big rise of inflation can destabilize the market and cause prices to go down.
That’s because higher, sustained rates of inflation typically mean an increase in mortgage and interest rates. And when mortgage/interest rates go up, that tends to deflates speculative bubbles, whether they’re in housing or the stock market.
Markets that exhibit this profile include:
Austin, TX
Boise, ID
Salt Lake City, UT
Phoenix, AZ
Denver, CO
Dallas, TX
These Housing Markets have home prices which have already climbed well above the level of inflation. That means that they could be at a big risk of decline in a rising inflation environment where interest rates go up.
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0:00 Inflation is Raging! +6.2% YoY
1:44 Highest CPI Inflation since 1990!
3:22 New York’s Inflationary Housing Crash
4:49 What About Los Angeles and Boston?
6:43 Mainstream Inflation Narrative is WRONG?
8:08 Prices Above Inflation? Then WATCH OUT!
9:30 Austin: Mega Bubble
10:11 Boise: the BIGGEST BUBBLE?
10:35 Salt Lake City: Mind the Gap
10:51 Denver: Rock Mountain Housing Crash?
11:11 Nashville: When’s the Music Going to Stop?
11:28 Atlanta: This Has Never Happened Before!
11:44 Phoenix: Becoming Increasingly Volatile!
12:07 Dallas: the sneaky Housing Bubble!
12:33 Tampa: Getting WAY More Expensive!
12:50 Charlotte: Historically Stable, Recently Volatile
13:06 Inflation-Based Analysis: Watch out for HIGHER RATES!
14:02 Inflation Beneficiaries: Baltimore, Albany, Little Rock
15:13 Historical Price Stability = Better Inflation Hedge
16:07 Is Long-Term Inflation Here to Stay?
16:57 SMASH that LIKE Button!
#InflationCrisis #HousingMarket #MarketCrash