5 Effects of Inflation on House Prices


Inflation. Just thinking about the word can make most people clutch their wallets. That’s because inflation can increase the prices of goods and services. It can even raise housing prices.

Increased home prices and interest rates for both buyers and renters are the least exciting things to think about. Fortunately, as a homebuyer or seller in an inflationary market, you can take steps to minimize your losses and maximize your happiness. These steps start with learning about the relationship between inflation and house prices. 

With this knowledge, you can do more than power your way through a period of high inflation. You can thrive in the home you’ve always wanted.

#1 Increased Mortgage Rates

Like education loans and auto loans, a mortgage is a type of loan that typically carries interest. This interest is known as the loan’s mortgage rate and is added to the principal. 

For example, suppose you take out a five-year $100,000 mortgage at a five percent mortgage rate. At the end of your loan period, your lender will expect you to pay $105,000 (the principal plus the accrued interest).

In an inflationary period, these rates generally increase. That’s because inflation devalues the currency. Consequently, lenders will likely raise mortgage rates to offset their profit losses due to currency devaluation. 

In some cases, these higher mortgage rates can be double what they were even a year prior, making it more difficult to afford a home.

#2 Increased Rents

If you’ve ever rented a home, you likely know several factors that determine your monthly payments:

  • Location
  • Rental size
  • Amenities

However, what you may not know is that rising inflation can also raise your rent. That’s because rent, like other goods and services, fluctuates with currency’s value. So if you’re wondering why is rent increasing, you can thank higher housing costs and rising inflation.

To better understand the relationship between rent increase and inflation, imagine you’ve rented a home for two years. For the first year, you paid $1,000 per month. In the second year, your rent rose to $1,100 per month to account for the devaluation of the currency. This $100 adjustment follows the increased consumer prices of other goods and services.

The good news is that periods of high inflation don’t have to eat into your budget. Some coliving units include utilities, WIFI, and cleaning. That way, you can spend less on rent-related expenses and more on experiencing your vibrant, new city.

#3 Increased Construction Costs

Not only does inflation increase property prices of homes already built, but it can also increase construction costs. Building a new home or adding to an existing one can excite homebuyers and developers. After all, each new joist, window, and drywall is one step closer to your dream home.

However, in a period of high inflation, building a new home can be much less dreamy—and way more expensive. Commercial developers may also encounter financial obstacles.

In short, inflation increases the cost of goods needed to construct new homes. The most commonly-impacted construction materials include:

  • Lumber
  • Concrete
  • Insulation 
  • Steel

The cost to build a new home can dramatically increase because of these price hikes.

Inflation-induced price increases can also impact homeowners who wish to raise their homes’ values through renovations. Given the high cost of construction materials, these homeowners may not be able to renovate their homes. As a result, they may have to sell their homes at a lower price than their original asking price.

#4 Decreased Home Values

Although inflation can make home prices rise, prolonged inflation can also cause home values to decline. This is because homes, like nearly all goods and services, follow the principles of supply and demand.

As stated above, high inflation can increase mortgage rates and construction costs. As a result, people are generally less likely to purchase or build a new home. When this occurs, the supply of homes can increase the demand. This imbalance can lower the value of the overall housing market.

The effects of market forces and rising interest rates can be even more pronounced in cities with high living expenses. Thankfully, some coliving units make city-living easy—even during periods of high inflation. These coliving communities provide technology, comfortable designs, and fully-furnished spaces so you can feel at home, no matter the economic environment.

#5 Coliving Can Increase

Inflation can make it difficult for people to afford homes due to high housing prices. As a result, periods of high inflation can cause people to look for other housing arrangements—especially coliving.

In short, coliving combines the privacy of living on your own with the joys of shared-space communities. These units typically provide much more convenience and affordability than traditional studio apartments. 

What’s more, coliving can provide people with a sense of community during otherwise stressful economic times.

Live Easier with Common

When it comes to how to deal with inflation, it can feel helpless. High inflation can be as bothersome as a hole in your umbrella. Just when you get comfortable, the increased price of goods and services can rain down and dampen your financial security. 

Fortunately, Common can help you weather any inflationary storm.

Through our all-inclusive coliving units and our traditional apartments, we can help renters raise their living standards while lowering housing costs. Talk about sunshine on a cloudy day.

Find your new home today and start living easier with Common.



Bob Vila. 10 Inflation Price Hikes That Will Increase the Cost of Your Home Projects This Year. https://www.bobvila.com/articles/price-inflation-construction-materials/

Forbes. Mortgage Rate Predictions For 2022. https://www.forbes.com/advisor/mortgages/mortgage-interest-rates-forecast/

The Ritz Herald. The Co-Living Revolution: A New Generation’s Answer to Expensive Living. https://ritzherald.com/the-co-living-revolution-a-new-generations-answer-to-expensive-living/

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