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Existing-home sales increased from September to October – a period when the homebuying typically slows down – suggesting that inflation concerns are fueling demand for real estate.

Sales of existing-homes, which include single-family homes, townhomes, condos, and co-ops, increased 0.8% from September to October to a seasonally adjusted annual rate of 6.34 million, according to data from the National Association of Realtors® (NAR).

Homebuying activity typically cools throughout fall and winter before picking back up in early spring. But the 2021 housing market has been anything but typical. Low interest rates, the desire for more space, and remote work flexibilities caused a surge in homebuying demand that far exceeded available supply.

Now it seems inflation can be added to that list.

"Inflationary pressures, such as fast-rising rents and increasing consumer prices, may have some prospective buyers seeking the protection of a fixed, consistent mortgage payment,"  said Lawrence Yun, NAR's chief economist.

That’s evident in the uptick in sales by first-time homebuyers looking to exit the rental market and individual investors/second-home buyers using real estate as a hedge against inflation.

Buyer Type September 2021 share October 2021 share
First-time28%29%
Individual investor/second home buyer13%17%
All-cash23%24%

The Bureau of Labor Statistics reported an inflation rate of 6.2% in the 12 months leading up to October – well above the pre-pandemic rate of 1.8% in October 2019. Inflation not only drives up the price of homes, but the interest rates on home loans.

With growing concerns that the high-inflation environment will last longer than previously expected, real estate is becoming an attractive safety valve. This is apparent in Wall Street’s single-family homebuying spree, which has been accelerating throughout the pandemic. From April 2020 to June 2021, investors increased their share of total home purchases from 14.1% to 24.3%.

While investment firms own less than 2% of single-family rental homes, their growing interest in this asset class is a signal of their inflation-hedging value.

Few could have predicted the record home price run-up in 2021 because the pandemic offered too many uncertainties. However, with the economy stabilizing and pandemic concerns waning (at least compared to a year ago), most housing authorities forecast that inflation will continue to drive up rent, home prices, and mortgage rates throughout 2022.

2022 mortgage rate forecast

It seems homebuyers got the message in October and bought accordingly. If this trend continues the market may continue to run hotter than normal throughout the offseason buyers race against diminishing affordability.


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