General Real Estate Investing

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Marcus Auerbach
  • Investor and Real Estate Agent
  • Milwaukee - Mequon, WI
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Nobody is talking about the real impact of inflation

Marcus Auerbach
  • Investor and Real Estate Agent
  • Milwaukee - Mequon, WI
Posted Jan 14 2022, 05:32

Predictions for inflation have been around for years, now it's here and it will be for a while. It's in the news every day. CPI (consumer Price Index) came out a few days ago with 7.0%  for 2021 and when I look at the producer price index at 9.7% - biggest gain on record - it seems like there will be more to come. And this is global: Germany 5.3%, India 7.6%, Mexico 7.3%, Brazil 10%, Russia 8.4% (and then the catastrophic inflation in Turkey 36% and Argentina 51%)!

The current situation of 30y fixed rates being less than half of what inflation is seems absurd! Rates should be higher than inflation! This is upside down, how can lenders sustain this?

On top of that RE keeps appreciation - and from what it looks like - it will have to continue down this path. Many of us wish we could go back to 2009-2012 as the opportunity of a lifetime and buy more then - we might be looking back at 2022 the same way.

The general public's view on inflation is that it means price increases; gas, steaks, houses. Those are all short term inconviniences. Nobody is talking about that fact that their 401k just lost 7% and will probably continue to do so potentially year over year compounding down.

It also means that real estate got 7% cheaper, which offsets about a thrid of the national appreciation gain last year (about 20%). What puzzels me is that inflation with it's massive impact on REI is not a big topic here on BP.

I am on here every morning and there are still so many posts about when is the housing market going to crash and barely anything about inflation. This is a literal game changer. What type of rent growth will we see over the next five years. Try running numbers with 5% p.a. Inflation could be the best thing that happenes to anyone with a sizeable portfolio, it could also get really ugly if it starts to run away. 

Where will interest rates be in 5 years? Could we see double digits again? The current consesus is that we will see mortageg rates at 3.7% by the end of the year and I don't believe it. I am surprised there is no fear mongering about the crash of the USD. How wide can the wealth devide grow, before the tension gets too high? What gives? Where are all my fellow YouTubers - seems like the next big clickbait! Or will that still come?

Anyway, just some thoughts along my cup of coffee - time to get to work! 

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