Is Real Estate a hedge against inflation?

In short, yes. Investing in real estate offers a couple of advantages during inflationary periods, and this recent runup is no exception. And there is scads of evidence that a diversified portfolio, one that has 20 percent or more invested in real estate, offers strong and stable returns. 

Doug Brien, the CEO of Mynd, believes an inflationary environment creates more opportunities for investors in the SFR market. “It’s an attractive option because rents are bound to rise along with inflation,” Brien said, which increases the cash flow for property owners.

As rates rise, demand for rental homes is likely to increase as well, he added. “If it becomes more expensive for potential buyers to finance a purchase, fewer will be able to afford it,” Brien said. “This will increase demand for single family homes and create more upward pressure on rental prices.”

The old adage is that real estate acts as a hedge inflation, and there are a number of reasons for that, including:

• Housing prices rise with inflation, so owners will see appreciation. With the country some 3.8 million units short of demand according to Freddie Mac, upward pressure on prices means that longtime owners have already seen the value of their assets increase more quickly than at any time in recent memory. 
• Mortgage payments do not change over time, but inflation means the money paid back in the future is worth less. As equity grows, fixed-rate payments stay the same.
• Rents on single family homes have been on a steady upward swing over the last two years, and inflationary pressures have hit the rental market as well.

source: https://www.mynd.co/knowledge-center/what-happens-to-real-estate-during-inflation

Posted on 6/22/2022