If you have researched selling or buying a home in recent years, you may have noticed that a dramatic change has taken place. Houses have become much more expensive and this shift has occurred quickly—primarily as a result of the pandemic. However, other forces are also at play to impact housing prices, and history can give us some insight into what to expect and how to shield yourself from market fluctuations and even an increase in fraudulent behavior.
Just because you own a home and do not plan to sell right now doesn’t mean you are not at risk. Here’s what we know about how inflation impacts house prices, how to secure your purchase, and how to protect your investment.
What Causes Market Fluctuations?
The short answer to “what causes market fluctuations” is “a lot.” Most recently, the pandemic played a major role; people who were forced to stay home suddenly realized that they wanted more space, driving up demand. Similarly, the pandemic suppressed the market, during which only those who already had money were able to invest more. This primarily led to increased wealth generation for corporations and investment firms, who invested at a low point and saw significant profit when the markets recovered.
Now, residential properties are being purchased as investments rather than residences, decreasing supply for prospective homeowners. When supply goes down and demand goes up, prices tend to soar, and this is what has been happening.
How Inflation Impacts Home Prices
In addition to the supply and demand issues, inflation has undercut the buying power of most American households. Historically, housing prices have increased during a period of inflation as a result of the government’s attempts to curb inflation and keep buying power at a reasonable level.
This can be seen across significant periods of inflation, occurring not only during the Great Depression but also in the Great Inflation Housing Bubble during 1977-1982, and the Great Recession Housing Bubble between 1997 and 2012 which, of course, includes the housing crisis of 2008.
The reason for inflation’s impact on home prices is simple; as the government adapts to curb inflation, it tends to make more money available for use in one way or another. If a family had $100,000 to spend on a house and a choice of five houses that were exactly the same. Those houses might be priced at $20,000. However, if more money was printed, that family might suddenly have $200,000 instead.
In response to this change in the economy, the sellers of those homes would likely increase the price to $40,000 so they make the same percentage in profit. Whether or not those homes return to their former $20,000 price point after inflation decreases is variable, making many homes much more expensive than they used to be.
What History Tells Us About Risk in the Housing Market
Why does all this matter, particularly if you already own a home and don’t plan to sell? With increased volatility and access, issues in the real estate market have come with an increase in fraudulent behavior as well. There is a greater incentive for fraud to help people gain access to the homes that they need or to get rid of homes for a good price for cash liquidity.
For you, this means that if you’re buying in this market, it is critical that you purchase title insurance too, so that you’re protected against issues with the deed to the property. The person trying to sell you the property may not be the true owner, or mistakes may have been made along the way, all of which can compromise your rightful ownership of the home.
Similarly, if you already own a property, someone can still commit fraud to change the title to their name or even take out a loan using your home as collateral. Without title insurance, you’d be on the hook for that debt, even if you had no part in making it.
Inflation is a powerful motivator for people to gain access to liquid assets by fraudulently utilizing your home’s value.
It’s also the most likely time for a previously unknown heir to make a claim of ownership on your property, and without title insurance to help you legally fight this claim, you may lose your home, even if you’ve already paid it off.
Trust the Pros to Help You Keep Your Investment Secure
History gives us a useful tool to understand how inflation impacts house prices and security. In times of high inflation, title insurance is critical to ensure that your investment is protected as people become more vulnerable and fraud rises.
The experts at Mathis Title Company can help you to protect your home against fraud and protect your investment regardless of what the market does. Contact Mathis Title Company to learn more or to schedule an appointment to get started.