Why Inflation is Good For Real Estate
According to the WSJ, consumer prices rose 2.9% over the last 12 months.
This is the most prices have risen since 2011, indicating that inflation may finally be returning.
We like to remind readers, however, that Real Estate is an excellent inflation hedge.
As a hard asset, its value often keeps pace with inflation at a minimum (and often exceeds it).
REAL ESTATE VALUES GO UP WHILE PAYMENTS STAY THE SAME
With a 2.9% inflation rate, a $1 million dollar home will likely be worth at least $1.33 million in ten years.*
Similarly, rents also usually increase with inflation.
A renter paying $5,000 now will likely be paying over $6,600 in ten years if we continue to see 2.9% inflation.*
In contrast, if the $1 million homeowners above have a 30 year fixed loan, their payment will still be about the same in ten years.
1970s inflation was almost a gift for real estate owners with fixed rate loans from the 1960s; the value of their homes skyrocketed while wages increased too.
Many homeowners were able to pay off their mortgages and end up with a very valuable asset that doubled as an inflation hedge and a potential retirement nest egg.
*I borrowed these scenarios from the Compass Daily Newsletter.
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