As inflation begins to creep up, many people are wondering how it will impact the housing market. You have probably heard inflation being blamed for a variety of things, such as the high cost of living or the declining value of the dollar. But inflation can also have its advantages, especially when it comes to property.
In general, inflation is good for real estate because it increases the value of your home at a rate that outperforms other investments, such as stocks and bonds. That’s why during a period of rising inflation, real estate is cited as a good investment.
What is inflation?
Inflation refers to the reduction of money’s worth and is seen through the rise in prices of goods and services. So as inflation increases money loses its value, reducing the amount of its worth. Inflation can be particularly bad for those who have the money in cash. To beat inflation your savings and investments need to be growing faster than or equal to the inflation rate.
Real estate prices tend to increase during time inflation as unlike currency there is a limited supply of real estate. As more money gets printed the price of real estate increases. This is particularly true today as governments around the world sought to support the economy during Covid by printing money. Moreover, property prices were already rising as the demand for real estate outweighs the supply.
How can real estate be a good hedge against inflation?
Real estate can benefit from inflation as the value of your home rises with the inflation rate.
Investors can maximise their wealth through a mortgage. At the moment interest rates are at a historic low and this offers investors a chance to secure a long term mortgage with low-interest rates. Locking in a low-interest rate mortgage means that as the property price and rental income increase your ROI will grow.
Investors can capitalise on inflation by purchasing a property. Investors can reap benefits from both rising rents and values over time while also protecting themselves against inflation by taking advantage of cheap mortgage interest rates!