‘The Big Money Show’ panelists warn housing affordability is spiraling as Biden’s regulations, inflation, and migrant surge squeeze supply threatening the American Dream unless bold action is taken.
Home prices are rising, which is boosting American homeowners’ net worth – though those gains may be eroded by stubbornly high inflation.
Data from Realtor.com showed that median home listing prices were up 0.5% in July from a year ago, though the outlet noted in a report that inflation has outpaced those gains and is up 2.7% year over year.
That dynamic is known as home equity erosion and occurs when the value of a home rises at a pace that isn’t enough to keep up with inflation. As inflation rises at a faster rate than a home’s value, it weakens the purchasing power of a homeowners’ equity in inflation-adjusted terms, which can impact their ability to borrow against equity, conduct renovations or sell their home.
“Your house may still be worth more dollars than before, but those dollars buy less in the broader economy,” said Hannah Jones, senior economic research analyst at Realtor.com.
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Home equity erosion occurs when inflation rises faster than home prices. (iStock / iStock)
Housing is typically seen as a hedge against inflation and typically outpaces inflation over the long term, but Jones noted that isn’t always the case when inflation is elevated or if there is economic tumult.
“Over long horizons, housing tends to be an inflation hedge, but the relationship can break down in shorter bursts of higher inflation or economic stress,” Jones said.
“It’s not catastrophic if inflation briefly outpaces home price growth, especially if you have a fixed-rate mortgage,” she said. “But if it persists, it erodes real housing wealth, so homeowners should monitor inflation, diversify their assets, and think about housing as both shelter and part of a bigger financial picture.”
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Realtor.com’s report showed that the U.S. housing market has previously experienced a period of equity erosion.
One such instance occurred a little over 40 years ago during the period of stagflation seen in the late 1970s and early 1980s – as the outlet noted that in 1980 home prices were up 6% year over year and inflation was 13.5%.
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Home listing prices haven’t risen as fast as inflation this year. (Steve Pfost/Newsday RM via Getty Images / Getty Images)
A similar pattern has played out in recent years as the economy faced the highest inflation in 40 years during the COVID-19 pandemic amid a combination of supply chain disruptions and historic fiscal stimulus intended to support the economy.
Inflation rose 8% in 2022 after peaking at the 40-year high of 9.1% in June that year, then rose 4.1% in 2023 and 2.9% in 2024, according to data from the Minneapolis Federal Reserve.
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By contrast, home listing prices were up 13.7% in 2022, then rose 2.3% in 2023 before declining by 0.4% in 2024. Thus far in 2025, listing prices are down 0.3% on average.
