Inflation is the primary factor behind rapidly rising interest rates, although experts believe they were likely to rise with or without it.

The title of this commentary could be classified as an understatement.  There are certainly a lot of changes going on in the markets.  The catalyst of these changes is rising interest rates.  Though inflation is the main culprit blamed for escalating interest rates, the fact that the economy has almost fully recovered from the pandemic-induced recession means that interest rates were likely to rise this year in any case. But certainly, the increases would have been much more gradual without the influence of inflation. 

The stock markets have also reacted to rising rates and inflation. Early in May, we reached deep into correction territory. This correction has also been sharper and faster than expected.  Moving to the real estate market, it is here that changes typically happen more slowly. It takes more time to consummate a real estate transaction, while you can sell a stock in seconds.  The real estate market has been in a “seller’s market” territory for quite some time due to excess demand and a shortage of inventory. 

It is here that we have a divergence of factors.  For one, we do expect buyer demand will fall as higher interest rates and higher home prices have placed a double whammy on affordability. But that does not mean there will be more listings coming to the market.  Higher interest rates are deterring many sellers because they hold lower interest mortgages on their home.  Thus, we expect inventory to rise more slowly because of less demand, and hopefully that turns into a more balanced market. Just keep in mind that things can change again on a dime. For example, a stock market rebound can come at any time, especially if interest rates ease back a bit.  But the times – they are a changing.