It’s no secret that prices of goods and raw materials are surging right now. Goods such as gas, steel, metals, lumber, ketchup, chlorine, and even workers have been some of the contestants in short supply.
What is causing this shortage? The COVID-19 pandemic is largely responsible for exposing how brittle global supply chains and their shipping infrastructure has become.
Although the effects of the pandemic only represent a small percentage of any global supply chain’s risk, the increase in demand and supply variability caused parts and materials shortages, shipping delays and rising costs. Shortages in materials naturally reveals a higher demand for them, which brings us to inflation.
Inflation is a measure of the rate of rising prices of goods and services in an economy. Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages. A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product.
So, is there a correlation between inflation and home prices? Absolutely. In April, consumer prices rose at their fastest pace in 13 years and have continued on a steady trajectory. Sparse inventory, low interest rates, and high demand continue to place upward pressure on home prices, creating challenges across generations as buyer preferences shift. Younger Millennials continue to enter the market in droves while older Millennials look to upgrade and upsize their homes.
However, in response to rising prices, Boomers (who own 54 percent of the nation’s homes) may wait to sell, creating further inventory pressures of new construction for older millennials seeking to upgrade.
Fortunately, despite the surge in prices, California has reflected an overall increase in home sales by 8 percent. With rates remaining ultra low, it has compelled many homeowners to take advantage and refinance, and many first-time buyers to take the leap and purchase. In fact, heated market conditions and a shortage of homes for sale drove the state’s median price above the $800,000 benchmark for the first time ever in April, as home sales soared from last year’s pandemic-level lows.
California continues to experience one of the hottest housing markets as homes sell at the fastest pace ever, with the share of homes sold above asking price, the price per square foot and the sales-to-list price all at record highs, and active listings remaining at historic lows.
Do you need help maneuvering through this current market? Give us a call at (760) 930-0569 and one of our loan officers will be happy to answer any questions you may have.