<p>I should preface this by saying that I am not really familiar with or educated in economics. I have a hypothesis however, and I would like to know if there is research out there that supports or denies it.</p>
<p>I live in the U.S., and inflation here has been historically high over the past couple years. It seems that the war in Ukraine will only make things worse. The housing market has been hit arguably worse than just about anything else.</p>
<blockquote>
<p>Home prices keep going through the roof. A new report out today shows nationally, they're up 19% in a single year.</p>
</blockquote>
<p><a href="https://www.npr.org/2021/12/28/1068587824/u-s-home-prices-went-through-the-roof-in-2021" rel="nofollow noreferrer">Source from NPR</a></p>
<p>My hypothesis can be broken into two parts:</p>
<p>If people have been spending more than usual on new homes, we may have more people than usual purchasing homes barely within their price range (I know a couple people personally in this boat, but I don't know if this is really a valid assumption).</p>
<p>If we have more people than usual purchasing homes barely within their price range, and inflation continues to increase, they could start to fall behind on mortgage payments and we may see an increase in foreclosures over the next few years.</p>
<p><a href="https://propertyonion.com/education/foreclosure-predictions-for-2022/" rel="nofollow noreferrer">This article</a> seems to support my idea, although it seems that they don't really expect foreclosures to increase beyond what was normal before the pandemic. I feel that these conditions could cause foreclosures to increase to historically high levels, but I don't have any evidence to support that belief. Is there any research or are there any theories that suggest these conditions could cause historically high foreclosure rates? Where could I be wrong in my reasoning?</p>

CC BY-SA 4.0
2022-03-25T23:17:31.163Z
Inflation has actually been historically low over the past couple of years (since 2008). The surge in inflation is a very recent phenomenon. If interest rates rise sharply (not Inflation), there will be an impact on foreclosures (provided the majority has floating rate loans) but there is a lot of room for interest rate hikes compared to historical levels.
Alex
CC BY-SA 4.0
2022-03-27T00:20:55.313Z
How would inflation make servicing debt difficult for the owners? Mortgage payments are not inflation linked afaik.
Dayne
CC BY-SA 4.0
2022-03-27T11:36:21.987Z
Hi @Ryan. The answer to your question might depend upon the substitutions people make between essential consumption goods and debt. The substitution rate is likely to vary heavily across households/income distribution where choices/constraints vary. If for example, people are heavily constrained between eating/heating and servicing debt (albeit at the expense of potential homelessness), they may have no option but to foreclose. However, I would argue that this is unlikely. Foreclosure is likely more related to unemployment (complete loss of income), rather than inflation (diminished incomes).
EB3112
<inflation><housing><prediction>
How will inflation affect foreclosure rates?
Ryan
# How will inflation affect foreclosure rates?

(Asked by: username_0 on 2022-03-25)

I should preface this by saying that I am not really familiar with or educated in economics. I have a hypothesis however, and I would like to know if there is research out there that supports or denies it.

I live in the U.S., and inflation here has been historically high over the past couple years. It seems that the war in Ukraine will only make things worse. The housing market has been hit arguably worse than just about anything else.

> Home prices keep going through the roof. A new report out today shows nationally, they're up 19% in a single year.

[Source from NPR](https://www.npr.org/2021/12/28/1068587824/u-s-home-prices-went-through-the-roof-in-2021)

My hypothesis can be broken into two parts:

If people have been spending more than usual on new homes, we may have more people than usual purchasing homes barely within their price range (I know a couple people personally in this boat, but I don't know if this is really a valid assumption).

If we have more people than usual purchasing homes barely within their price range, and inflation continues to increase, they could start to fall behind on mortgage payments and we may see an increase in foreclosures over the next few years.

[This article](https://propertyonion.com/education/foreclosure-predictions-for-2022/) seems to support my idea, although it seems that they don't really expect foreclosures to increase beyond what was normal before the pandemic. I feel that these conditions could cause foreclosures to increase to historically high levels, but I don't have any evidence to support that belief. Is there any research or are there any theories that suggest these conditions could cause historically high foreclosure rates? Where could I be wrong in my reasoning?

**Tags:** inflation, housing, prediction

> **Comments:**
> **username_1**: Inflation has actually been historically low over the past couple of years (since 2008). The surge in inflation is a very recent phenomenon. If interest rates rise sharply (not Inflation), there will be an impact on foreclosures (provided the majority has floating rate loans) but there is a lot of room for interest rate hikes compared to historical levels.  
> **username_2**: How would inflation make servicing debt difficult for the owners? Mortgage payments are not inflation linked afaik.  
> **username_3**: Hi @username_0. The answer to your question might depend upon the substitutions people make between essential consumption goods and debt. The substitution rate is likely to vary heavily across households/income distribution where choices/constraints vary. If for example, people are heavily constrained between eating/heating and servicing debt (albeit at the expense of potential homelessness), they may have no option but to foreclose. However, I would argue that this is unlikely. Foreclosure is likely more related to unemployment (complete loss of income), rather than inflation (diminished incomes).  

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## 0 answers

