Real Estate: A Hedge Against Inflation?

Today, you will see prices of essential items higher than they have ever been when you go shopping. Food prices have risen 6.3% as the cost of gasoline and oil both jumped almost 50%. In a situation like this, can real estate really save you from inflation

In the case of those who are looking for a new home, inflation has created a housing unit gap that shows the imbalance between house building rates and the population growth rate. November 2021 saw more than 6 million people buying houses. On the other side of the market, the Case Shiller U.S. Home Price Index showed an 18.6% increase in housing prices. 

The pandemic particularly influenced inflation rates by disrupting supply chains and causing global shutdowns, resulting in the U.S.’s housing inventory falling to its lowest levels in 2021. 

The inflation can be considered the result of the supply and demand crisis caused by the pandemic, which has also led to the decline in housing inventory. The housing/real estate industry also suffered from supply shortages, rising labor costs, and increasing prices of construction materials. This along with quotas being placed on steel and aluminum complicated the construction process even more. 

Consumer spending increased during the pandemic as multiple stimulus checks were provided to the public. However, demand was mostly focused on goods rather than services, causing a supply and demand imbalance that has persisted in the form of inflation. People cannot clearly predict all of the effects of the imbalance, but it is clear that factors contributing to inflation will continue to persist for at least a year.  

The future of the economy is heavily dependent on COVID-19 because if the impacts of the pandemic start to ease, production could slowly regain regular momentum while the demand for goods and services will smooth out, allowing supply chains to work back to a normal flow. Nonetheless, costs of certain materials will remain high while home inventory continues to decrease and interest rates increase. However, this provides a good opportunity to invest in real estate like commercial real estate (CRE), which is a long-term investment that allows you to get a 1.1% return in private CRE, or real estate investment trusts (REITs), which own and finance income-producing assets.

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Metaverse, a new and speculative venture, also offers real estate investments. With multiple investment options available, what’s stopping you from seeking comfort in real estate?

real estate and inflation

Via LuxurySoCalRealty