Housing Demand in a High-Inflation World
Real estate has a low correlation with shares, equities, and bonds, making it an excellent inflation hedge. As a result, investors’ interest is skyrocketing – despite a scorching real estate market, a scarcity of homes, and the possibility of rising mortgage rates.
Some experts believe that buying real estate now is a wise option despite the hot and competitive market because mortgage rates are still low. Others argue that real estate is so localized that it is case-by-case and that rural locations may not offer the same opportunities as metropolitan cities. But, in the end, it boils down to a person’s situation and real estate investing time horizon.
What Is an Inflation Hedge?
An inflation hedge is a financial instrument designed to safeguard a currency’s purchasing power against a loss of value caused by rising prices, either macroeconomically or due to inflation. It usually entails purchasing an asset with the expectation of maintaining or increasing its value over a fixed length of time. Alternatively, hedging could entail taking a more prominent asset position, which may depreciate at a slower rate than the currency’s value.
How Is Real Estate a Hedge Against Inflation?
Investing in real estate has several benefits during periods of high inflation, and this latest runup is no exception. And there’s plenty of evidence that a diversified portfolio with 20% or more in real estate produces high and consistent returns.
Owners will see appreciation as housing prices rise in tandem with inflation. Because of the severe housing shortage, long-term owners have already seen their assets rise faster than at any other period in recent years. Prices will most likely moderate, but 6-9 percent hikes are projected in many regions.
Where Will Mortgage Rates Go?
The majority of economists expect them to rise, not necessarily because of inflation but rather due to policymakers tightening monetary policy in response to it. Supply and demand factors in the market for mortgage-backed securities dictate the interest rate on mortgages to a great extent.
The Housing Market Hike Preceded Inflation!
The housing market’s price rise began before last year’s inflationary forces, as a scarcity of properties and pandemic-fueled migration to the suburbs and smaller cities sparked bidding wars and double-digit price increases in several areas.
These price rises affect both families and investors trying to buy single-family homes. Home prices are skyrocketing due to a scarcity of inventory.
Due to the restricted quantity of residences on the market, purchasers have experienced fierce competition and bidding wars. These have been exciting times for those already in the single-family home market. Many analysts say that investors still have good prospects doing their homework and selecting homes to buy with potential.
If you have plans to buy property, you might want to consider it now, keeping the real estate market conditions in mind. Know your market and start making housing investments.
