New data shows that the housing market is raising inflation in cities like Phoenix and Atlanta are being hit with higher inflation rates.

3 minute read

No one is safe from the record-high inflation America has seen this year. Rich or poor, everybody is feeling the sting of rising prices.

A new study shows, however, that pricier cities aren’t seeing the same inflation rates as other parts of the country. Inflation is rising the most in Phoenix, AZ, according to Wallethub’s analysis of the 23 biggest metropolitan areas. On the other end, Anchorage, AK saw the least amount of inflation.

Cities where inflation is rising the most:

  1. Phoenix, AZ
  2. Atlanta, GA
  3. Tampa, FL
  4. Miami, FL
  5. Dallas, TX

Cities where inflation is rising the least:

  1. Honolulu, HI
  2. Los Angeles, CA
  3. New York, NY
  4. San Francisco, CA
  5. Anchorage, AK

But even though Anchorage isn’t seeing Phoenix’s price increases, the cost of living (COL) there is much higher. It’s about 18 percent more expensive to live in Anchorage. The COL is calculated based on the average cost of basic goods like food and shelter. While inflation is the rate at which costs rise.

So if Phoenix is so much cheaper than Anchorage, why is it getting hit with the most inflation? Phoenix economist Jim Rounds says it boils down to housing investors and economic growth. Low property taxes entice buyers – most of the top five cities have taxes below the national average. Job growth in the area, however, also brings in new people looking for work.

“These investors will buy properties, rent them out, compete with hotels, and others,” Rounds told Debt.com. “But that also means that those homes aren’t available for workers.”

Inflation nation

The struggle between supply and demand is still driving up prices, regardless of some post-pandemic improvement.

“Inflation is caused by persistent increases in demand and/or persistent decreases in supply. While we have had some supply shocks, these have stabilized,” University of Delaware economics professor Burton Abrams told WalletHub. “So demand would seem to be the culprit now and going forward.”

A short supply of housing, as Rounds explained, is certainly one of the culprits. Rising home prices are one of the biggest factors driving up the nation’s average inflation rate.

“If you just have more people demanding a home, whether it’s a single-family or apartment, compared to what’s being supplied then you’re going to see this inflation,” Rounds said. “We’ll pat ourselves on the back for all the excellent work that we do on economic development and winning big businesses, but that means you got to keep up with the other areas of government that allowed those to work. And [housing] is often left behind.”

Keene State College business professor, Marie Duggan says market “market power” is what’s driving up prices. Market power is a company’s “ability to raise prices without losing customers.”

One example she points to is increasingly high cable bills.

“There are only two companies that offer cable in some areas, and both charge quite high prices,” Duggan said. “If they raise the price, they often do so in unison, so that customers are forced to pay.”

Find out: How to Make Inflation Work for You – and Change Your Mindset Forever

The Feds taking action

To combat rising prices, the Federal Reserve has raised interest rates three times this year. This is frustrating for anyone signing up for a loan or new line of credit, or that has an adjustable-rate mortgage.

Some experts say that this fix isn’t ideal but that it’s the best choice there is.

“To borrow from Winston Churchill, raising the interest rate is the worst solution for fighting inflation, except for all the others,” Abrams said. “As an alternative to raising rates, fighting inflation with price controls would be a total mistake, as Richard Nixon demonstrated.”

In the ‘70s, Nixon froze all prices and wages in an attempt to curve spiraling inflation. It worked at first and failed later. The stock market crashed and there was a supply shortage of almost everything.

Duggan agrees that the current rate hikes seem to be the lesser of many evils, but there is a limit to how much good they can do. Raising rates to 5 percent, a historical record, “would be healthy for the economy.” Anything more than that would be damaging, she says.

It’s impossible to accurately predict what the Fed will do over the next year or how the economy will react. Abrams says that in the short term, a recession could be coming.

While Roads agrees things may look bleak in the near future, the economy will improve.

“What everybody’s going to see is that prices are going to be stabilizing and falling some, but the interest rates are going to be going up,” Rounds said. “We may go through a period where affordability is actually going to get a little worse before it gets better.”

If that’s the case, it’s possible to prepare. Paying off debts – particularly credit cards and student loans – should be a priority. Avoid taking on a new loan, especially one with an adjustable interest rate. More debt leads to more problems.

Find out: Stop Making Bad Financial Decisions Due to Inflation

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About the Author

Gillian Manning

Gillian Manning

Gillian Manning graduated from Florida Atlantic University in 2021 with her bachelor’s degree in journalism. At FAU she served as the editor-in-chief of the student-run newspaper, the University Press. During her time there, the paper saw an increase in content production, readership, and engagement. Before she even graduated, Gillian was published in various outlets such as South Florida Gay News and the Boca Raton Tribune.

Published by Debt.com, LLC