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Real Estate as an Excellent Inflation Hedge

Buyers ask us all the time if we think “now is a good time to buy real estate.” We say “yes” for a variety of reasons (historically low rates, rock-bottom prices, cash flowing rentals, etc.) that we have highlighted many times.

But, there is one reason we want to highlight b/c we have seen it come up on other blogs: The “Inflation Hedge.” Right now inflation is not on the horizon, and as economies contract or stagnate, “deflation” seems to be the short-term concern.

Long-term, however, significant inflation is likely to surface b/c the Fed and other central banks are effectively printing money to maintain “liquidity.” And, when the economy comes back to life and all of this new money starts to circulate, inflation likely be a major problem as it was in the 1970s.

Buying a house now is a good hedge against potential inflation for two reasons: (1) a house is a “hard asset” and hard assets usually increase in value with inflation; and (2) a very low, fixed-rate mortgage can be paid off with much less valuable dollars after inflation sets in.

We saw this happen in the 1970s. People who had purchased homes in the 1960s with low fixed rates found themselves with much higher incomes and much more valuable homes in the 1970s. Even though these gains were often just a result of inflation, homeowners were able to pay off their 1960s mortgages completely with their much higher 1970s post-inflation incomes.

Today’s buyers could easily find themselves in a similar situation in 5 years.

Investors looking to buy gold, or oil or insurance stocks as “inflation hedges” may instead want to look to real estate as one of the best inflation hedges of all.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167