Real Estate and Inflation

There are plenty of opinions as to whether there will be inflation or not. Whether or not we will be seeing slight inflation or large scale inflation, real estate is always a great investment!

In the chart below, provided by the Wall Street Journal, you can see that real estate prices and inflation are highly correlated. That means, at least historically, when inflation is high, real estate appreciates at a high rate. In other words, you don’t lose wealth from inflation with your real estate investments.

At the bottom of the chart, you see long term (LT) govt bonds are negatively correlated to inflation. That means there’s a large wealth destruction effect if you hold this asset class. (Usually LT govt bonds have a low interest rate locked in for a long time, so inflation erodes the purchasing power of the money you have invested).

inflation chart

There’s a lot of hand wringing from real estate investors that prices are high and cap rates (a measure of cash flow generated from a rental) are on the low end of the range. That’s true.

But with near-record low mortgage rates, it’s still historically attractive to buy second homes or rental properties.

And since real estate is a great hedge against inflation – even better than gold – it’s a good time for you to consider purchasing a vacation or rental property.

Further, real estate is the biggest part of CPI, consumer price index, the broad measure of inflation. Here’s a quick chart showing how influential housing is for CPI.

CPI, consumer price index

If you are worried about inflation, buying real estate (with a long term fixed rate mortgage) is a great way to profit from inflation. Reach out today if you’d like to explore opportunities for real estate investments. 

*Originally authored by Lon Welsh, Your Castle Real Estate, with edits by me!

%d bloggers like this: