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Illustration of an unbalanced scale where the heavier side has a man, standing on top of money, reaching out to the lighter side with a house for sale
Ben Mounsey-Wood for Money

Americans haven’t seen inflation this high since shoulder pads were in, Ronald Reagan was president and the first Indiana Jones was still playing on the big screen.

The latest consumer price index reading clocked in at 8.5%, the highest rate of price growth since December 1981. People are feeling pinched at the grocery store, where the cost of meat, poultry, fish and eggs is up nearly 14% compared to last March. And at the gas pump, a gallon of unleaded is now topping $5 in some cities.

In the housing market, where skyrocketing prices and rents were already a problem, hopeful homeowners are feeling the burn even more. Home prices jumped 19% between January 2021 and January 2022. In March, the median price for active home listings was $405,000 — the highest point on record, according to Realtor.com.

Inflation is only adding fuel to this fire, causing both prices and mortgage rates to rise further — a “double whammy,” as Francis Creighton, president of the credit reporting trade association Consumer Data Industry Association, puts it. “Their dollars have less buying power and loans get more expensive,” he says.

Unfortunately, experts predict inflation will remain high as the year goes on. Are you hoping to buy a home despite these headwinds? Here’s what inflation will mean for your goals — and how to cushion its blow.

How inflation impacts home prices

Historically, when inflation rises, so do house prices. This is in part because inflation makes home construction more expensive, which increases the prices of new homes and discourages building.

“This benefits sellers. However, it creates a much more challenging environment for buyers,” says Noble Black, a real estate agent with Douglas Elliman in New York.

Builders are already showing signs of slowing down. According to the National Association of Home Builders, builder confidence has dropped to its lowest point since September 2021. Building permits — a good indicator of future construction activity — also dropped 2% from January to February, according to Census Bureau's latest numbers.