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What will happen to home prices if inflation stays high? Here's what some experts think

Stubborn inflation could cause home prices to rise further, according to some experts. Getty Images

The unemployment rate remains low at 3.9%, according to the Bureau of Labor Statistics. On the flip side, inflation is at 3.50% — 1.50% higher than the Federal Reserve's target rate. Rates for car loans and mortgages are much higher than they were a few years ago, too.

Because of this, some homebuyers are finding it more difficult to afford a home since the average 30-year mortgage rates are over 7%. If you want to purchase a home, you may wonder whether you should wait for rates to drop. However, you should be aware of what could happen if inflation rates remain high.

See what mortgage rate you could secure here now.

What will happen to home prices if inflation stays high? 

Here's what can happen to home prices if inflation remains elevated, according to the experts we consulted.

Home prices could rise 

"Higher inflation means higher mortgage rates, which in turn means lower housing affordability conditions," says Robert Diez, Chief Economist at National Association of Home Builders. NAHB "research finds that at today's mortgage rates, and today's home prices and household income levels, only a quarter of American households can afford a typical home."

Diez isn't the only economist who thinks home prices could remain elevated. Brad Dillman, Chief Economist at RPM Living, an investment and management company, believes a lack of inventory is driving up prices.

"Today, home prices are increasing in part because there is relatively little listed inventory, which has greatly benefitted new home builders," Dillman says, adding that "if this trend continues, we can expect new single-family home construction to remain relatively elevated."

Brian Durham, Vice President of Risk Management and Managing Broker at Realty Group LLC and Realty Group Premiere, thinks home prices could rise if mortgage rates fall.

"The most significant price increases will happen again if and when mortgage rates come back down and millions more homebuyers come off the sidelines and back into the market," notes Durham. "Unless the supply of homes increases significantly you can expect prices to continue increasing, barring something bad happening to the economy."

Lock in a mortgage rate before home prices rise further here now.

Home prices could remain flat

Dillman also believes there could be a scenario where home prices remain flat because renting is more affordable in some areas. 

"Weakness in multifamily rentals today may serve to siphon demand from the for-purchase space because renting is more affordable in today's real estate market [than buying a home]," says Dillman. "With rents down year over year in many large traditionally affordable markets, this is becoming more common."

Home prices could fall

Dillman also said that home prices could fall despite high inflation - if the economy suffers major job losses.

"Significant job losses, particularly among full-time workers, could cause an increase in mortgage defaults and serve to reduce marginal demand," says Dillman. "The oversupply of new homes, coupled with an uptick in existing homes for sale, may cause a market that has been rising on little volume (home sale transactions) to experience a decline in home prices."

The bottom line

It's challenging to predict what will happen to home prices if inflation remains high. "The housing market is complex enough that even a Federal Reserve rate cut wouldn't have a known impact on housing prices," says Christopher Flis, a certified financial planner and President of Resilient Asset Management.

Regardless of whether inflation leads to higher or lower home costs, it's crucial to review your budget so that you can buy a home you can afford. To increase your chances of qualifying for the best mortgage rate for your situation, shop around with at least three to five lenders. Also, keep in mind that even if you buy a home today with a relatively high mortgage rate, you can also refinance later if rates drop.

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