Both inflation and housing prices have risen dramatically over the past few years, but are the two linked in any significant way? Many say they are. And with the median sales price of a home in the U.S. standing at $416,900 as of April 2025, according to the Federal Reserve Bank of St. Louis, buying a house is off the table for many Americans.
Plus, according to the U.S. Bureau of Labor Statistics, the consumer price index rose by 2.4% over the past year.
Check Out: How Much House Does $300K, $400K and $500K Buy You in Every State?
Read Next: How Middle-Class Earners Are Quietly Becoming Millionaires — and How You Can, Too
So will continued inflation make housing prices worse? Or is it actually a time to buy? Here are some effects of inflation on the housing market to consider.
Trending Now: Suze Orman’s Secret to a Wealthy Retirement–Have You Made This Money Move?
Interest Rates Remain High
While March’s 2.4% inflation doesn’t seem like a lot, the target for the U.S. Federal Reserve for healthy inflation is 2%. That, and the threat of President Donald Trump’s tariffs further increasing inflation, could mean the hoped-for interest rate cut will remain just a hope for now.
According to most of the economists in a Reuters poll, a rate cut likely won’t come until at least next quarter. And in fact, as Real Estate News reported, some believe there will be no cut until at least fall of this year.
Fed Chairman Jerome Powell said in a news conference that there is a lot of uncertainty surrounding which direction inflation will trend, per CNBC. “We don’t know what will happen with tariffs, with immigration, with fiscal policy and with regulatory policy. We need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be,” he said.
All this means that mortgage rates will likely remain where they are, with the average 30-year fixed rate hovering around 7%, according to Mortgage News Daily.
Find Out: The Salary Needed To Afford America’s 50 Biggest Cities
Construction Costs Rise
President Trump’s recently announced 25% tariffs on imported steel and aluminum could mean higher construction costs for new-home builders. And it’s highly unlikely they’ll absorb those costs. New-home prices could rise by about 5%, according to a John Burns Research and Consulting analysis reported in USA Today. On a median-priced home, that adds up to about $21,000.
But the worries don’t stop there. Builders are also concerned about their supply chains, which might disrupt their building schedule, according to Kiplinger. It could all add up to lower supply and inflated prices in the new-home market.
Home Prices Rise
Although there are many factors that can compete with inflation, rising inflation usually means higher home prices. Per Rocket Mortgage, home prices can increase in tandem with — or even more than — general price increases in an inflationary environment. The above-mentioned possible supply shortage of new homes is also an inflationary pressure on home prices.
Because sellers’ money doesn’t go as far as it did previously, they may increase the asking price of their homes. Combined with higher mortgage rates — i.e., a higher price of borrowing money — and the cost of a home can quickly become inflated.
Is It a Good Time To Buy?
This might seem counterintuitive and upside down at first, but buying a home now may still be possible. If you can afford a home you want now, and you believe inflation will continue to rise, then buying now may be a solid move. If you are right, home prices will inflate more, making it even tougher to buy in the future — and making your home more valuable, as Griffin Funding explained.
However, the reverse is true also. If you believe inflation will subside and interest rates will come down, then waiting could be the right move.
More From GOBankingRates
-
6 Used Luxury SUVs That Are a Good Investment for Retirees
-
How Middle-Class Earners Are Quietly Becoming Millionaires — and How You Can, Too
-
7 Overpriced Grocery Items Frugal People Should Quit Buying in 2025
-
4 Low-Risk Ways To Build Your Savings in 2025
This article originally appeared on GOBankingRates.com: Housing Market 2025: 3 Ways Inflation Impacts Costs
