How Real Estate Helps Against Inflation

By Wade Curtis, MBA | November 23, 2022

If you have been following economic news, you know historically high inflation has been a hot topic. As many investors wonder how to make money during inflation, history has shown that investing in real estate is one of the best ways to hedge against inflation.

History of Inflation and Real Estate

Historically, high inflation rates have been a sign of economic instability. However, many investors seek new investment options during inflation, specifically in real estate. 

The last few months of 2021 saw the highest inflation rates in 40 years. Throughout 2022, rates have continued to rise. Despite this high rate of inflation, home values have seen extraordinary growth. In 2021, the Case-Shiller U.S. National Home Price index rose by 18.6%, making it the strongest year of growth since the index’s creation.

What the Future Holds

The COVID-19 pandemic significantly contributed to inflation, as it led to global production shutdowns. However, while supply chain issues are on the road to recovery, we may just be at the beginning of higher inflation rates.

High inflation and low bank prime loan rates correlate. In the late 1970s, before the U.S. experienced a 13.5% inflation rate in 1980, bank rates experienced a sharp drop. In 2022, history is repeating again with low prolonged rates before a high inflation period.

Monetary Stimuli

There have been major monetary stimuli over the past few years to combat the COVID-19 pandemic. These economic stimuli have gone toward agriculture, transportation, health, and small businesses.

Despite monetary stimuli, many businesses have yet to bring their stock back to pre-pandemic levels, which causes a decrease in inventory to sales ratios. Since 2020, buying power, demand, and low rates have increased. Simultaneously, supply chains and labor decreased due to the pandemic. These increases and decreases cause prices to spike, leading to inflation.

How Inflation Impacts Real Estate

It’s best to turn to the past to understand the full impact of inflation. In the 1970s, many investors saw a clear trend — while stocks and public market assets declined, the housing market saw a boom.

Investors in 2022 are seeing rising real estate prices again, with the home index far surpassing stock and public market assets. If the correlation between inflation and real estate continues mimicking trends of the late ’70s, investors could have significant real estate opportunities.

Unlike intangible investments such as stocks or crypto, housing is a basic human need and is near the end of the list of unnecessary expenses. When it comes to stocks versus real estate, investing in property is a reliable hedge against inflation and adds real, tangible value to your investment portfolio

Learn More With 1031 Crowdfunding

Investing in real estate can serve as a hedge against inflation while adding value to your portfolio. At 1031 Crowdfunding, our team has more than eight decades of combined real estate experience. With over $2.2 billion in real estate transactions, our team truly excels in the many unique situations a real estate platform may experience. 

We also offer numerous private real estate investment opportunities, such as our Opportunity Zones and Bridge Funds that continue performing well even in high-inflation environments. Contact us today to learn more about our investment opportunities and how we can help your portfolio thrive!

This material does not constitute an offer to sell or a solicitation of an offer to buy any security. An offer can only be made by a prospectus that contains more complete information on risks, management fees and other expenses. This literature must be accompanied by, and read in conjunction with, a prospectus or private placement memorandum to fully understand the implications and risks of the offering of securities to which it relates. As with all investing, investing in private placements is speculative in nature and involves a degree of risk, including loss of your principal. Past performance is not necessarily indicative of future results and forward-looking statements and projections are not guaranteed to achieve the results described and your actual returns may vary significantly. Investments in private placements are illiquid in nature and there may be no secondary market or ability to sell the investment should the need for liquidity arise. This material should not be construed as tax advice and you should consult with your tax advisor as individual tax situations will vary. Securities offered through Capulent, LLC Member FINRA, SIPC.

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