How Can real Estate Protect Against Inflation?


As inflation began to rear its ugly head to the public back in December, the Fed finally began to verbalize its intentions to hike rates and stave off a worsening condition within the American economy. Then, as Russian troops, stormed across the border into Ukraine, everything was momentarily thrown into flux as the US government considered the delicate balance between rate hikes, inflation, and foreign policy. While mortgage rates have ticked up through Q1, hopefully cooling a scorching hot real estate market, this series of events is a shining example of why investors should take great care to protect themselves from these kinds of market forces, and how valuable real estate is as a protection against inflation itself.

In the short-term, mortgage rates may move higher as the Fed continues to inch closer to its desired inflation rate of about two percent. Over time, however, inflation can erode purchasing power and lead to stagflation – a dangerous economic condition where prices are rising while economic output is declining. This occurs when there is an imbalance between aggregate demand and aggregate supply in the economy. In other words, inflation happens when there is too much money chasing too few goods.

One way to protect yourself from inflation is by investing in assets that tend to hold their value better than others. Real estate is one such asset class that has historically shown itself to be relatively immune to bouts of inflation. By buying a property and realizing the benefits of principal paydown, appreciation, and cash flow investors put themselves in a position to withstand all stages of the economic cycle.

With the cost of goods and services rising with inflation, asset classes such as securities and hard currency tend to take a hit, whereas real estate continues to hold its value and can even increase in these types of environments.

As the economy shows signs of teetering, it’s more important than ever to move out of cash and into hard assets, not only as a hedge against current market forces but as a jumping off point for the beginning of the next economic cycle in whatever form it comes.

To learn more about how investment real estate can help you reach your financial goals, or to find off-market opportunities, give us a call at 469-649-7666 today!


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