{"id":163877,"date":"2024-01-02T18:51:26","date_gmt":"2024-01-03T01:51:26","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=163877"},"modified":"2024-01-11T17:08:39","modified_gmt":"2024-01-12T00:08:39","slug":"real-estate-during-inflation","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/real-estate-during-inflation","title":{"rendered":"The Impact of Inflation on Real Estate"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC1883474045\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p>Inflation broadly impacts the overall economy, causing the prices of goods and services to rise. This can have rippling effects across various sectors, including the real estate market.&nbsp;<\/p>\n\n\n\n<p>Real estate investors, homebuyers, and home sellers need to understand how inflation impacts the real estate market. This can help them make the best decisions when buying and selling real estate.&nbsp;<\/p>\n\n\n\n<p>We\u2019re here to explain what causes inflation, its impact on real estate, and how real estate investors can benefit even when inflation is high.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Understanding Inflation and Its Causes<\/h2>\n\n\n\n<p>When your dollars don\u2019t buy as much as they did in the past, it\u2019s because of inflation. An increase in the money supply and debt is the ultimate culprit of high inflation.&nbsp;<\/p>\n\n\n\n<p>Over the years, the central bank has significantly increased the money supply. Because of this, there are more dollars to go around. Ultimately, this means companies selling goods and services can charge more for them, as people technically have more money to spend, although incomes usually stagnate for inflation to happen.<\/p>\n\n\n\n<p>An economy that isn\u2019t growing, or at least isn\u2019t keeping pace with the growth in the money supply, results in inflation. Companies can\u2019t necessarily produce enough goods to keep up with demand, allowing them to charge more for what they can produce.&nbsp;<\/p>\n\n\n\n<p>To keep inflation in check, the Federal Reserve often increases interest rates. This can help reduce consumer spending and lower rampant inflation.&nbsp;<\/p>\n\n\n\n<p>As people spend and borrow less, companies can replenish and build up supplies. However, it can take several years for the economy to neutralize or grow after a period of high inflation.<\/p>\n\n\n\n\n\n\n  <div class=\"lg:block\" x-data=\"{ ad_block_block_6594ba6b5e848: popAds(1) }\">\n      <template x-for=\"ad in ad_block_block_6594ba6b5e848\">\n        <a\n          :href=\"ad.linkURL\"\n          class=\"no-underline text-black\"\n          x-on:click=\"adClicked('https:\/\/www.biggerpockets.com\/blog\/real-estate-during-inflation', ad.sponsor, ad.title, ad.id, 'blockAdClicked', 'blockAd', '')\"\n          target=\"_blank\">\n          <div\n            class=\"py-4 border-b flex flex-col flex-nowrap text-sm border-t px-0 rounded-none\"\n            x-init=\"\n              analytics.track('blockAdLoaded', {\n                referrer: 'https:\/\/www.biggerpockets.com\/blog\/real-estate-during-inflation',\n                sponsor: ad.sponsor,\n                ad_title: ad.title,\n                ad_page_location: ''\n              })\n            \"\n            x-intersect:enter.once=\"adViewed('https:\/\/www.biggerpockets.com\/blog\/real-estate-during-inflation', ad.sponsor, ad.title, ad.id, 'blockAdViewed', 'blockAd', '')\">\n            <div><span class=\"text-xs text-slate-light block bg-slate-50 p-1 inline-block rounded-md\">Sponsored<\/span><\/div>\n            <div class=\"flex items-center text-sm space-x-4\">\n                <img :src=\"ad.imageURL\" :alt=\"ad.imageAlt\" class=\"h-10 w-10 object-cover rounded-full\">\n\n                <div clas=\"text-sm\">\n                    <span class=\"font-bold block\" x-text=\"ad.sponsor\"><\/span>\n                    <span class=\"text-slate\/80\" x-text=\"ad.description\"><\/span>\n                <\/div>\n            <\/div>\n\n            <div>\n                <span class=\"font-bold\" x-text=\"ad.title\"><\/span>\n                <p class=\"mt-2 text-slate\/80\" x-text=\"ad.body\"><\/p>\n                <span class=\"mt-2 text-themeBlue block mt-2 underline\" x-text=\"ad.linkTitle\"><\/span>\n            <\/div>\n          <\/div>\n        <\/a>\n      <\/template>\n  <\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\">What Happens to Real Estate During Inflation?<\/h2>\n\n\n\n<p>For real estate, inflation typically means you\u2019ll pay more for a home. Your dollars aren\u2019t worth the same amount today as they were last year. So a house that cost $400,000 a year ago could cost $450,000 today. If interest rates are also high, this means a significant increase in what you pay for a property.&nbsp;<\/p>\n\n\n\n<p>On the other hand, if you already own property, you could see higher equity during periods of high inflation. While equity is good for your bottom line, inflation can be challenging if you want to add assets to your <a href=\"https:\/\/www.biggerpockets.com\/blog\/building-scaling-real-estate-portfolio\" target=\"_blank\" rel=\"noreferrer noopener\">real estate portfolio<\/a>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Real estate as an inflation hedge<\/h3>\n\n\n\n<p>Many real estate investors will tell you real estate is a good hedge against inflation. The reason for this is often because of rising interest rates.<\/p>\n\n\n\n<p>Let\u2019s say you buy a home when interest rates are at 5%, and two years later, interest rates go up to 7% because of inflation. In this case, the mortgage you got with a 5% fixed interest rate is going to have a lower payment than if you get a mortgage with a 7% fixed interest rate. A higher interest rate, combined with a higher purchase price, makes real estate less affordable.<\/p>\n\n\n\n<p>You might have to <a href=\"https:\/\/www.biggerpockets.com\/guides\/buy-and-hold-rental-property\" target=\"_blank\" rel=\"noreferrer noopener\">hold real estate<\/a> long term if you want to use it as a hedge against inflation. Often, a volatile real estate market can create short-term corrections that affect the price of real estate. This may quickly change the value of a property.&nbsp;<\/p>\n\n\n\n<p>Because people have less disposable income, investors might have to drop the price of their properties to make them more affordable. Being able to hold a property longer means you won\u2019t have to sell if the market takes a downturn.&nbsp;<\/p>\n\n\n\n<p>Having real estate in your investment portfolio can help mitigate losses from other assets that inflation affects more drastically, such as <a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-vs-stocks-performance\" target=\"_blank\" rel=\"noreferrer noopener\">stocks<\/a> and bonds. Because home prices usually outpace inflation, they tend to rise even when the economy is experiencing a rough patch. Rental income from real estate investments keeps up with inflation historically. This means investors can continue to receive passive income regardless of inflation.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Real estate construction costs and inflation<\/h3>\n\n\n\n<p>Construction materials cost more when inflation is high. This results in higher costs to build new homes and remodel or rehab existing homes.&nbsp;<\/p>\n\n\n\n<p>Builders are less inclined to start new construction projects during periods of high inflation. Investors could see an increase in the price of their properties because of this. A property becomes more valuable when there\u2019s less inventory available.<\/p>\n\n\n\n<p>However, builders may have to reduce prices for new homes in their inventory if high interest rates keep them on the market too long. When prices for new homes fall, it affects other real estate in the area. If <a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-comps\" target=\"_blank\" rel=\"noreferrer noopener\">comparable homes<\/a> in a neighborhood where you own property drop in price, it makes your home worth less to potential buyers.&nbsp;<\/p>\n\n\n\n<p>New construction often requires builders to borrow money to complete the project. High interest rates can deter construction companies from building new homes. While this may drive up prices on existing homes, low housing inventory can fuel inflation. This may not affect the real estate you currently own, but it could make buying new properties more challenging.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Real estate investments and the effects of inflation<\/h3>\n\n\n\n<p>Rental property isn\u2019t the only type of real estate inflation affects.&nbsp;<\/p>\n\n\n\n<p><a href=\"https:\/\/www.biggerpockets.com\/blog\/commercial-real-estate-fundamentals\" target=\"_blank\" rel=\"noreferrer noopener\">Commercial real estate<\/a> is another area for investors to consider during times of high inflation. Business owners who rent or lease commercial space face an increase in operating costs. There\u2019s also a higher potential for their rents to go up when inflation is on the rise. Those who own commercial buildings may see more vacant space if businesses have to downsize or close because they can\u2019t afford to pay these higher costs.&nbsp;<\/p>\n\n\n\n<p>It\u2019s also important to consider the increased costs of materials for making repairs to a commercial building. If you put off making repairs while you wait for inflation to come down, you risk allowing your building to fall into disrepair, lowering its value. On the other hand, there may be a reduction in new construction for commercial buildings, which can increase the value of buildings that already exist.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Benefits of Real Estate Investing During Inflation<\/h2>\n\n\n\n<p>Despite higher interest rates and tighter lending requirements, investing in real estate during inflation has some benefits. For instance, you can build equity in an investment property soon after buying it. While the price of real estate varies, overall, it only goes up. So, in terms of real estate, buying sooner is always better, especially when you plan to hold it long term.&nbsp;<\/p>\n\n\n\n<p>Another reason to <a href=\"https:\/\/www.biggerpockets.com\/smarter\" target=\"_blank\" rel=\"noreferrer noopener\">invest in real estate<\/a> is that interest rates could continue to rise. The higher interest rates climb, the less affordable housing gets. You can refinance your high-interest mortgage if interest rates come back down in the future. And you\u2019ll have been building equity with each mortgage payment you make.<\/p>\n\n\n\n<p>Rent often rises when inflation does, so you can increase your passive income by investing in real estate during inflation. Additionally, the demand for rental property tends to increase during times of inflation because borrowers have a harder time getting a loan or don\u2019t want to pay the higher interest rate on their mortgage. This creates an excellent opportunity for investors who have the capital to buy property when inflation is high.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Final Thoughts<\/h2>\n\n\n\n<p>Inflation means the costs for goods and services are up compared to previous months, and incomes aren\u2019t keeping up. What happens to real estate during inflation can have a big impact on investors. Increases in interest rates can make mortgages less accessible. A decrease in supply means fewer options when looking for investment opportunities.&nbsp;<\/p>\n\n\n\n<p>But there\u2019s a bright side. Real estate investors can take advantage of higher rents that result in an increase in cash flow. Plus, having a diversified portfolio that includes real estate can help mitigate losses, as real estate prices typically go up during inflation.<\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_7e08ffd3137fddf42fed613c71202e5a\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_cfe122458b357b35b30e509d0d8fe45c\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<div id=button-custom-event-block_0aa9a004a1e91a410abe1557de375075 class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\"\n        x-on:click=\"window.analytics.track('Blog Block | B2C Marketplace Lender Finder', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/real-estate-during-inflation',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/signup\"\n        x-on:click=\"window.analytics.track('Blog Block | Acquisition | Free Membership Signup', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/real-estate-during-inflation',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Inflation broadly impacts the overall economy, causing the prices of goods and services to rise. This can have rippling effects across various sectors, including the real estate market.<\/p>\n","protected":false},"author":613696,"featured_media":163879,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5524,7119],"tags":[],"class_list":["post-163877","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-for-beginners","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/163877","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613696"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=163877"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/163877\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/163879"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=163877"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=163877"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=163877"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}