One of my finance professors in college named housing best hedge against inflation and I never forgot that. He said tangible assets like real estate, gold, silver, etc. retain their value as the dollar is devalued due to inflation.
Construction Costs Going Up
In fact, as inflation heats up, the cost to build new construction only goes up. Because our market has been under-supplied for years, we are forced to build our way out of this. The only thing that could change the equation is if demand slowed.
Demand has slowed somewhat due to rising interest rates and insurance costs. Consequently, inventory has risen the past several months, and this should temper price increases like we’ve seen the past two years.
Whether home prices will appreciate or decline slightly no one can say. What we do know is the stock market has been volatile and has mostly headed down in 2022. Real Estate may be a much safer play in the short run, and the long run.
As you can see by the chart, since 2000 real estate has outperformed inflation. This includes the real estate crash years in 2006-2009. While searching the Internet I found more data dating back to 1967 that shows real estate outperformed inflation as well.
We May Already be in a Recession
Many people say the US will enter a recession in 2022. Others believe it will be 2023, and still others believe we are already in one. Negative growth impacts stocks, and as such we have seen a pullback in stock prices. When the Fed raises interest rates it is not usually good news for Wall Street.
Rising rates can dampen home affordability, and therefore it can have a negative impact on real estate prices short-term. We still believe now is a good time to buy before rates go higher. We did a video on our YouTube channel (https://www.youtube.com/c/Topagent) which shows how waiting to buy in hopes prices will come down actually costs a buyer when rates increase. Send me an email if you’d like a direct link to that video Brett@TopAgent.com
Whatever happens with real estate prices in the short run it should be less volatile than stocks and should protect against inflation. The other nice thing about real estate is you can live in a home; you can’t live in a stock. You can rent out a home for income when you are not using it. Real estate has so many advantages over stocks, including some tax deductions.
Is Your Home Working For You?
If you have a home that’s not quite working for you, now may be a good time to sell. Real estate prices are strong and while inventory is growing, it is still a good time to sell. If you wait to sell, you are occupying a home that doesn’t quite work for you, and it may be harder to sell when more homes enter the market in the future. Not to mention, interest rates could keep climbing.
As interest rates climb less and less buyers qualify for your home. If you are getting a loan on your next home, it may cost you more in the future. Interest rates have held steady the past week or so waiting on direction from the Fed at next month’s meeting. The inflation outlook will dictate how that goes, and we are expecting another rate increase in June, and perhaps several more this year. Either high prices will slow this economy down, or high rates will. It may be a combination of both, but rest assured the Fed will slow down the economy to get inflation under control.
The question is, will they overshoot and put us into recession? The other question is where is the best place to put our money in uncertain times.? Real estate may be a good option, and now is a good time to get into the right real estate for you.
Always Call the Ellis Team at Keller Williams
To get your home sold Always Call the Ellis Team at Keller Williams Realty 239-310-6500 or visit www.LeeCountyOnline.com to search the MLS, or www.SWFLhomevalues.com to get your home’s value instantly. Our marketing reaches more buyers, which brings more offers.
Good luck, and Happy Memorial Day Weekend!