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Will soaring inflation harm real estate? – Orange County Register

“”Bubble watchDelves into trends that may indicate future economic and / or housing market problems.

Buzz: A warming economy heats up living costs in Southern California and the country, raising the risk of rising interest rates that can damage real estate values.

Source: Consumer price index and slices of the region.

trend

How hot is it? By the way, Inland Empire’s inflation rate in May was 5.9% per year, compared to 3.9% in Los Angeles and Orange County. Nationally, the CPI rose at a rate of 5% — the highest in 2013.

This is a big change for shoppers as they adapt to the resumption of the economy.

A year ago, a virus-driven blockade, a time when merchants cut prices to seduce customers, frozen businesses and jobs. Inflation for the four counties as a whole was 0.9% in May 2020, but was 0.1% nationwide.

And recalling the good old days of May 2019, when the economy was in full swing, IE saw inflation of 2.9%. 3.1% for LA-OC. 1.8% nationwide.

Anatomy

Returning to the normal state of life is a major cause.

The urge to spend increases as business restrictions designed to slow the spread of the coronavirus are relaxed and vaccinations allow more consumers to go out comfortably. Prices have risen due to rising demand for many products and services. In particular, gasoline and used cars are leading to new trips.

Locally, high inflation in the Inland Empire is stronger, compared to, for example, Los Angeles County, where the unemployment rate in April was 11%, compared to 7% in other states. It reflects the economic recovery.

The breakdown of Southern California’s major consumer spending categories (Riverside and San Bernardino counties compared to the LA-OC metropolitan area) shows where the prices are highest and where they are highest.

Let’s start with the house, which is the biggest cost …

Rent of the main residence: Inland communities increased by 1.8% in a year, while coastal communities increased by 0.9%.

Home energy: It increased by 13.5% in the inland area, while it increased by 10.6% in the coastal area.

Home furniture, operation: It increased by 6% in the inland area, while it increased by 2.1% in the coastal area.

Then look at the food …

Grocery: Inflation of 2.3% in both inland and coastal communities.

Eating out: It increased by 2.1% inland, while it increased by 4.4% on the coast.

Alcoholic beverages: It increased by 7.3% in the inland area, while it increased by 3.1% in the coastal area.

Driving is much more expensive …

New car: Inflation of 2.9% inland and 1.8% in coast.

Secondhand car: 29% increase inland and coastal.

gasoline: It increased by 49% in the inland area and 46% in the coastal area.

Other purchases …

clothes: Inflation of 5.2% inland and 7.2% in coast.

All services: It increased by 4% in the inland area and 2.2% in the coastal area.

Medical: It increased by 3% in the inland area and reached zero in the coastal area.

Recreation: It increased by 2.5% inland, while it increased by 2.1% on the coast.

Tuition / Childcare: Inland areas increased by 2%, while coastal areas experienced 2.6% deflation.

caveat

The economic recovery was clearly boosted by historically low interest rates created by the Federal Reserve. Discounted funding has clearly led to a recent home purchase binge.

But keep in mind that the Fed is also monitoring inflation. If inflation becomes too problematic, central banks can take action to eliminate mortgage bargains.

Note that some economists monitor a strange CPI index (living costs minus food and energy) that tracks what is considered “core” inflation. Last year, it increased by 2.1% in the coastal areas, compared to 4% in the inland areas. Well, if you could only live without food and energy!

How do you foam?

On a scale from zero bubbles (no bubbles here) to 5 bubbles (5 alarm warnings) … 4 bubbles!

The “current wisdom” is that this spring’s inflation surge (the highest level since before the Great Recession) may be a short blip that reflects a solid economic recovery from the worst of the pandemic era.

Expect the Glass-half-full guess to be correct.

why? Recall another time when inflation exceeded 5%. It’s the same as the housing bubble burst over the last decade in the early 1990s. The inflationary bout did not end well for the local economy and house prices.

Jonathan Lansner is a business columnist for Southern California NewsGroup.He can reach at jlansner@scng.com

Will soaring inflation harm real estate? – Orange County Register Source link Will soaring inflation harm real estate? – Orange County Register

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