Shelter from the (Inflation) Storm?

Inflation presents a mixed bag for real estate, particularly residential housing. On the one hand, inflation favors hard (vs. paper) assets; witness investors’ recent appetite (if not lust) for gold, silver, oil, and even winter wheat.

As the original hard asset, real estate would seem poised to join in this advance. After all, Economics 101 says that repaying (fixed) debt with cheaper dollars benefits debtors at the expense of creditors.

On the other hand, inflation can also usher in higher interest rates, which are anathema for debt-financed housing; in the early 1980’s, when long term rates briefly hit 14%, real estate transactions temporarily ground to a halt.

Fixed Housing Costs

How things will play out this time remains to be seen. However, the nice thing about real estate is that, in a world where the price of everything suddenly seems to be increasing, house payments remain locked in — at least for people with fixed rate mortgages.

By contrast, renters can expect multiple price hikes as landlords pass through their increased costs (and take advantage of stronger rental demand brought on by tighter credit).

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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