Will Soaring Housing Market Retail Economic Recovery?

by Jan Frazier

New York  (Washington Insider Magazine) – Wall Street is saying that the higher inflation won’t last. However, soaring house and rental costs will test that statement.

House prices have already been up around 15 percent from last year. In the first six months of 2021, house rentals have been triple what they were last year. Because of both of these high costs, it’s possible that inflation will continue in an upward spin. 

Price spikes have showed up in nearly every aspect of society. Fannie Mae, the government-run company that has covered over half of the country’s mortgages, said that “housing costs could eventually boost inflation by as much as two percentage points by the end of next year.”

A gradual buildup of the inflation market could “spook markets and feed calls for the Fed to push borrowing costs higher, a move that could choke off economic growth as Democrats fight to hold onto control of Congress.”

Federal government officials as well as President Joe Biden’s administration believe that inflation will begin to lessen as the economy continues to fully reopen. However, because leases on houses is traditionally annual, the house-driven inflation could continue to spike.

Torsten Slok, chief economist at Apollo Global Management, said, “The outlook for rents is key. With rents going up as the economy reopens, we will continue to see more upward pressure on overall inflation.”

For the moment, financial markets are not terribly concerned about the recent spurt in inflation because the market believes that it will subside as America emerges from the pandemic. However, the contagious Delta virus is a concern for the country.

Some people have decided that their homes are too small as social-distancing guidelines were put into place and remote work increased. Plus, as the huge millennial population reached an age that they can start to buy houses, this, too, made the housing market soar. With mortgage rates hitting rock-bottom, it seemed that it was just in time for the young adults to leave their “cramped urban quarters for spacier homes in the suburbs.” The high prices would make would-be homebuyers think twice. This could lead to an increase in rentals, which were unusually low during the pandemic.

SOURCE

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