Inflation as well as supply and demand are the primary influences of real estate prices.

Supply and demand is defined as: the number of homes for sale compared to the number of buyers looking for homes. In a robust economy the number of homes for sale is usually smaller than the number of buyers. Occasionally demand can exceed supply in a bad economy as well.

So, what is inflation? In the most basic terms, inflation is the increase in services and/or goods, that makes the dollar worth less and devalue.

As is currently happening, inflation can impact the price of gas, groceries, cars, and most of all the housing market.

Currently, there are two categorical theories on the cause inflation.

Cost-push inflation (type 1) is when price of goods and/or services increase. This is due to the increase of overhead (costs to own and operate) for the companies that produce goods and services. Because the producers of the goods and services “push” their increase onto the consumer, this is the reason it is called cost-push.

When discussing real estate, the companies that build homes, sell construction materials, etc. also offset their costs onto the consumer. This can make the real estate prices rise for those looking to buy. However, in our current market, the price of real estate is at an all-time high in affordability.

Due to record low interest rates and an increase in the number of homes for sale, homes are being sold that cash flow positive (even with no money down).

Currently, real estate investors are increasing in numbers as the return on investment of housing provides a better return than investing in the stock market. For the average family looking to buy a home, the cost of buying or constructing a new home is also at an all-time low.

Inflationary adjustments and cycles are common. However, market conditions like the ones present are quite rare. In fact, right now, you can buy a home for less than the cost to rent the same home.

For example, a home in Port Lucie Florida is currently renting for $1,100 per month. The same home is being sold for $170,000. That home can have a mortgage payment of less than $1,000 with little or no money down.

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