Impact of inflation on the property market
Inflation
Inflation can be termed as an increase in price. Inflation is caused by money printing. Inflation increases the money supply but the value of currency decreases. Inflation is also known as indirect tax by central banks or governments and is an easy way to confiscate wealth.
The general impact of inflation
Inflation has a great impact on price and purchasing power. Due to the rise in inflation, goods get more expensive but at the same time purchasing or buying power decreases. A high inflation rate results in fewer sales and is generally considered bad for the economy. For example, a pair of shoes is for 10 rupees. But due to inflation, its new price is 20 rupees. As income is not increasing with inflation, purchasing power will decline and so will the sale volume.
Impact of inflation on the property market
Property transactions reduce
The property market is hit hard by rising inflation. Due to the high inflation rate, properties get more expensive and sale volume reduces. As fewer people can buy the same house now, this will result in declining home ownership.
Interest rates increase
A rise in inflation results in rising in interest rates. When a property is bought on a mortgage, an increase in inflation means a high-interest rate and high repayment. Due to inflation, we can see many foreclosures as people cannot afford mortgages with high-interest rates.
Construction activates stall
Inflation also impacts the construction sector. When inflation is high, building material gets expensive. This results in high construction costs as compared to the original estimate. Due to high inflation construction activities are stalled.
Rents increase
Many people rent homes for a living. Rents do rise with the increase of inflation. This makes rent payment difficult as people have to pay a high percentage of their net income. This ultimately results in homelessness.