Home prices are rising, which is boosting American homeowners' net worth – though those gains may be eroded by stubbornly high inflation.
Data from Realtor.com showed that median home listing prices were up 0.5% in July from a year ago, though the outlet noted in a report that inflation has outpaced those gains and is up 2.7% year over year.
That dynamic is known as home equity erosion and occurs when the value of a home rises at a pace that isn't enough to keep up with inflation. As inflation rises at a faster rate than a home's value, it weakens the purchasing power of a homeowners' equity in inflation-adjusted terms, which can impact their ability to borrow against equity, conduct renovations or sell their home.
"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 typically seen as a hedge against inflation and typically outpaces inflation over the long term, but Jones noted that isn't always the case when inflation is elevated or if there is economic tumult.
"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.