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Inflation in the United States has rapidly increased over the early months of 2022; its impact has been felt in every aspect of our lives. Everything from our groceries to our gas bill has gone up noticeably, but unless you’re looking at the ways it’s impacted the housing market specifically some of the impacts aren’t going to be noticed. 

How Inflation Affects the Rental Market

One of the fastest places we see inflation impacting the housing market is in the average rental rate. From February 2021 to February 2022  Georgia saw a 17% increase in rental rates, a drastic increase from previous years where the increase was between 3% and 5%. As the cost for labor and materials for maintenance rise, landlords usually compensate for that by increasing the rent they’re charging per unit. Inflation also keeps more people renting that would otherwise have moved into the buyers market keeping demand higher than the already tight housing supply.

How Inflation Impacts Mortgage Rates

In a much less direct way, inflation affects the housing market through interest rate increases. While the Federal Reserve doesn’t dictate what mortgage rates are directly, but they do dictate the Federal Funds Rate. The Federal Funds Rate is the interest rate the FR sets for bank to bank overnight loans to meet their Reserve requirements. 

During periods of inflation the Fed raises the Federal Funds Rate as a way of stemming the problem. In March of 2022 the Federal Funds Rate was only at .25% whereas in Mid-July it was up to 2.5%, the highest it’s been since 2018.  Most banks use the Federal Funds Rate as a guidelines for how they decide the interest rates they charge their borrowers–particularly for their mortgage rates. As inflation increases, so do mortgage rates. 

While it’s impossible to accurately predict how this inflation will impact the housing market the rest of the year there are a few take-aways that are important to keep in mind moving forward: Inflation raises the cost of everything, including housing. But at the same time the increased mortgage rates and the higher cost of living has significantly reduced the demand for buying a house. With how volatile the housing market has been since 2020 it’s impossible for us to say for certain exactly what’s going to happen in the rest of 2022. 

Any time you buy a home in Georgia it is required by law that there is a licensed real estate attorney present at closing. It’s important to contact them in the right time frame as well! If you’re taking steps to close on your house in the next 30-60 days, that is the ideal time to reach out and choose your Georgia real estate attorney. Any less time than that and you’re not going to get the quality of service that you and your home deserve! If this sounds like your time frame don’t hesitate to give us a call! At Frank B. Pallotta Law we are licensed Real Estate Lawyers with 20 years of experience helping our clients in Georgia navigate the closing process. Reach out to us with your questions. We’re here to help.