Rising home prices are lifting homeowners’ net worth, but inflation is cutting into those gains.
Realtor.com reported median listing prices rose 0.5% in July from last year, while inflation climbed 2.7%. This “home equity erosion” happens when home values rise more slowly than inflation, reducing the real value of owners’ equity and limiting their borrowing power, renovation plans, or resale gains.
“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.
Housing is often viewed as a hedge against inflation and usually outpaces it over time, but Jones noted that this isn’t guaranteed during periods of high inflation or economic turmoil.
“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. 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.”
Realtor.com noted the U.S. has faced equity erosion before, such as during late-1970s stagflation, when 1980 home prices rose 6% while inflation surged 13.5%. A similar trend emerged during the pandemic, when supply chain disruptions and massive stimulus drove the highest inflation in 40 years. Inflation hit 9.1% in June 2022 before averaging 8% that year, then eased to 4.1% in 2023 and 2.9% in 2024, Minneapolis Fed data shows.
