Will soaring inflation harm real estate? – Orange County Register


Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.

Buzz: A warming economy heats up the cost of living in Southern California and the nation, and raises fears of rising interest rates that could hurt real estate values.

Source: The Consumer Price Index and its regional slices.

The trend

How hot is it? Well, inflation in May in the Inland Empire ran at an annual rate of 5.9% vs. 3.9% in Los Angeles and Orange counties. Nationally, CPI was up at a 5% rate — a 13-year high.

It’s a big change for shoppers adjusting to the economy’s reopening.

A year ago, businesses and jobs were iced by virus-driven lockdowns, a period that saw merchants cut prices to lure customers. May 2020’s inflation across the four-county region was 0.9% vs. 0.1% nationally.

And if you can recall the good ol’ days of May 2019, when the economy was in full stride, we saw 2.9% inflation in the I.E.; 3.1% in L.A.-O.C.; and 1.8% nationally.

The dissection

A return to some normalcy in life is a big culprit.

The urge to spend grows as limits to business designed to slow the spread of coronavirus were loosened and vaccinations made more consumers comfortable with going out. The increased demand for many products and services upped prices, notably two tied to renewed travel: gasoline and used cars.

Locally, stronger inflation in the Inland Empire reflects its more robust economic rebound compared to, say, Los Angeles County with an 11% unemployment rate in April vs. 7% in the rest of the state.

A breakdown of Southern California by key consumer-spending categories — Riverside and San Bernardino counties compared with the L.A.-O.C. metro area — shows where prices are hot and hottest.

Start with the largest expense, housing …

Rent of primary residence: Up 1.8% in a year in inland communities vs. 0.9% coastal.

Household energy: Up 13.5% inland vs. 10.6% coastal.

Household furnishings, operations: Up 6% inland vs. 2.1% deflation coastal.

Then look at food …

Groceries: 2.3% inflation in both inland and coastal communities.

Dining out: Up 2.1% inland vs. 4.4% coastal.

Alcoholic beverages: Up 7.3% inland vs. 3.1% coastal.

Driving is far pricier …

New vehicles: 2.9% inflation inland vs. 1.8% coastal.

Used vehicles: Up 29% inland and coastal.

Gasoline: Up 49% inland vs. 46% coastal.

Other purchases …

Apparel: 5.2% inflation inland vs. 7.2% coastal.

All services: Up 4% inland vs. 2.2% coastal.

Medical care: Up 3% inland vs. zero coastal.

Recreation: Up 2.5% inland vs. 2.1% coastal.

Tuition/child care: Up 2% inland vs. 2.6% deflation coastal.

Caveat

The economic recovery was clearly boosted by historically cheap interest rates created by the Federal Reserve. The discounted financing clearly led to the recent homebuying binge.

But do not forget that the Fed watches inflation, too. If inflation becomes too…



Read MoreWill soaring inflation harm real estate? – Orange County Register

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