In the real economy, there are a lot more factors that affect house prices and the correlation is not as prominent as in our example. One of the other major factors causing house prices to increase is interest rates. When interest rates are low, buying homes can be more affordable and increase the demand for homes. If the supply of homes remains constant and the demand increases, then the prices of homes will increase. In large cities where land availability is often limited, you can see a more pronounced effect of inflation. (For more related reading, see: The Truth About Real Estate Prices.)