Turn To Real Estate As a Guard Against Inflation
U.S. inflation has hit highs unmatched in four decades. Gas prices have been inflated 49.6%, energy 29.3%, food by 6.3% (costing Americans an average of $24 more per month), and all items, on avenger, by 7%. There's no doubt that inflation is eroding the affordability of our everyday necessities, putting prices at their highest since 1982, as costs rise at gas pumps, grocery stores, and on virtually all consumer goods.
Inflation is the result of a number of economic indicators, all of which rely on the Consumer Price Index (CPI). The U.S. Bureau of Labor Statistics defines CPI as, “a measure of average change over time in the prices paid by urban consumers, and currently, rising inflation is projected to continue. But, despite the national turn in economic tides, you can still guard your wealth against inflation through property investing - a long-standing investor strategy to stay on top of inflation.
There are three main motivators for investing in real estate when inflation spikes. First, rental rates increase with property values, augmenting net rental income. Second, property values rise with inflation, increasing returns on nearly all real estate properties. Lastly, mortgage rates stay fixed during inflation, keeping tenants in place in long-term situations.
As a result of inflation and international production shutdowns, which increased product scarcity, America’s housing inventory reached an all-time low in April of 2021 as construction material costs grew exponentially. The prices of construction materials influence overall building costs by 35% to 60%. With inflation, lumber prices inflated 114% from May of 2020 to May of 2021, and steel and iron prices skyrocketed 73% from June of 2020 to June of 2021.
Inflation has created an increased discrepancy between demand for housing and the ability of builders to keep up with it, as overpriced materials slow construction and leave prospective home owners waiting. Over the course of the past two decades, underbuilding has been a consistent issue, with an average standing gap of 5.5 million homes. Now, with inflation widening the gap, it stands at 6.8 million homes.
Despite the struggle to meet demand with cost efficiency, home sales have remained stable throughout this economically volatile period. 6,460,000 homes were sold between November of 2020 and November of 2021 - the highest total since 2006. For 2022, projections reveal a predicted 6.6% increase in home sales and a 2.9% increase in appreciation.
With the uncertainty of inflation overshadowing our financial decisions, investing in real estate is to invest in the future. By putting your money in properties, a long-term asset with ever-flowing demand, your wealth and assets can continue to grow and establish a prosperous financial future for you.
About the Author:
Brian Wallace is the Founder and President of NowSourcing, an industry leading infographic design agency in Louisville, KY and Cincinnati, OH which works with companies ranging from startups to Fortune 500s.
Brian runs #LinkedInLocal events, hosts the Next Action Podcast, and has been named a Google Small Business Adviser for 2016-present. Follow Brian Wallace on LinkedIn as well as Twitter.
