In recent years, inflation has started affecting various economic sectors, including the housing market. San Luis Obispo County is not immune to these changes. As the cost of living rises, many potential homebuyers struggle to afford homes, and sellers wonder how to adapt to the changing market conditions. In this article, we will explore five ways inflation impacts the San Luis Obispo housing market.
Rising Home Prices
The median sales price of a home in San Luis Obispo County surged by 23% in 2022, hitting a peak of $975,000 in November before declining slightly to $935,000 in December (San Luis Obispo Tribune). Inflation has increased the cost of materials, labor, and land, directly impacting new construction and home renovations. According to the National Association of Realtors, the cost of materials for new construction rose by 17%. In comparison, the cost of labor jumped by 12% in 2022.
Slowing Pace of Growth
Although home prices in San Luis Obispo County have risen significantly, the pace of growth has decelerated in the latter half of the year as inflation took a toll on buyers’ budgets (San Luis Obispo Tribune). With higher prices for everyday goods and services, potential buyers may have less money to spend on housing, slowing the demand for homes and the pace of price increases.
Rising Interest Rates
The average interest rate on a 30-year fixed-rate mortgage in San Luis Obispo County reached 5.5% in December 2022. As inflation pushes up interest rates, borrowing money for a mortgage becomes more expensive. Higher interest rates can make it harder for potential buyers to qualify for a mortgage, limiting the pool of potential buyers (National Association of Realtors).
Home Values May Waver
As inflation makes it more difficult for buyers to afford homes, with fewer potential buyers in the market, home values may waver. If you want to sell your house fast in San Luis Obispo, consider getting an appraisal to understand your home’s value. But remember, how long does an appraisal take? Typically, an appraisal takes about a week, although it can vary depending on the property and market conditions.
Potential Decline in Home Prices:
If inflation continues to strain buyers’ budgets and limit the pool of potential buyers, home prices could decline (HomeLight). Although San Luis Obispo County saw a rise in median home prices in 2022, sustained inflation could lead to a downward trend.
Inflation is having a notable impact on the San Luis Obispo housing market. Rising materials and labor costs are driving home prices, while inflationary pressures are slowing growth and pushing up interest rates. As a result, both buyers and sellers are facing new challenges. Suppose you’re looking to buy or sell in San Luis Obispo. In that case, staying informed about the current market trends and understanding the effects of inflation will help you make the best decisions for your unique situation.