Over the past two years, booming markets have sparked a purchasing craze for everything from stocks and crypto to new housing. The search for safe haven investments is now in full swing with inflation at a roughly 40-year record and with at least three rate increases factored in.
Real estate is one of the investments that can hedge against inflation since there is typically a minimal link 
between the asset class, equities, and bonds. Therefore, it should come as no surprise that investor's interest is rapidly rising in the face of a scorching hot housing market, a lack of available homes, and rising mortgage rates.
Considering that mortgage rates are still inexpensive, several experts believe that purchasing real estate now—despite a heated and intensely competitive market is a wise move. Some claim that since real estate is still so locally focused, that the returns vary. Rural locations may not provide the same opportunities as big cities. But in actuality, it depends on a person's situation and time horizon for investments.
You might be wondering, is Real Estate even correlated to Inflation?
Housing is dependent on demographic changes, development, and total supply, inflation is based on consumer pricing. But over time, because of salaries and interest rates, inflation and housing will have the tendency to go in the same direction. Wages are frequently raised by inflation, which raises expenditures for renting and purchasing. Because of borrowing being inexpensive the past several years in the U.S. and in other regions of Europe inflation is occurring.
There is a definite correlation between property prices and inflation, according to Colin Lizieri, the economist and professor of real estate finance at the University of Cambridge. House prices have generally maintained pace with inflation over the past 100 years. Industrialized nations have outpaced inflation by 2 or 3 percent.
Real estate is a desirable investment choice as inflation has recently reached levels that haven't been seen in years.
According to Benjamin Miller, chief executive officer of real estate investing platform 'Fundrise', "Real estate is an alternative to the stock market." “People invest in it for the same reason that they invest in cryptocurrencies. They’re worried about the current economic system and they want options.”
What effects may inflation have on someone wanting to sell their home?
It is still a seller's market, at least for the time being. According to the most recent statistics available, home prices increased 18.4% in 20 U.S. cities. Additionally, real estate app Zillow projects that through November 2022, home prices will increase nationwide by 14%.
In some of the top markets, the quantity of available houses is dwindling yet bidding wars are still going on.
As per Jeff Tucker, senior economist at Zillow. “As the price of everything else goes up, housing’s recent rise in cost doesn’t look so bad by comparison.” Therefore, it's probable that in the short run, despite inflation, real estate demand will stay high.
This year rising building material costs will cause house prices to rise even higher as home builders transfer those costs along to buyers because of to inflation and persistent supply chain problems. For instance, the cost of lumber and other materials has increased significantly recently. Supply issues are also a problem.
An additional threat from inflation comes from the rise of costs, such as food and gas. Prospective purchasers could have less money to spend on real estate in that event. However, Tucker forecasts that consumers would reduce their spending on more discretionary items like apparel, entertainment, and traveling, making more room for basics like housing.
Is this the right moment to purchase a home?
Everything is subject to unique conditions. While owning a house might protect you from yearly rent hikes, real estate costs have skyrocketed.
The head of the investment strategy at SoFi, Liz Young, said that “If it’s not a lifestyle situation where you want more space or wants to move to another geographical location, this might be a time to wait it out from buying.” “The risk is that the equity in the home doesn't go up a ton in the next few years because home prices are so high. From an all-time-high price level, there’s downside risk to prices in the near term.”
She suggested to buy a home if you want to reside in a property for over five years. However, it could be best to wait if you believe you might need to sell before then.
Contact Chattanooga Realtor, Nathan Walldorf, to help you hedge against inflation with real estate. 423-544-7700.
Article Source: Claire Ballentine and Alice Kantor, 2022