Macro Insight: Inflation & Real Estate

Currently there is a lot of buzz around inflation in the news. Why are prices suddenly soaring at the grocery store and what does this mean for the Real Estate Market?

For approximately the past 15 years, interest rates have been at historically low levels. From an economic perspective, growth had been slow and inflation negligible. When COVID entered the economic scene in 2020, the slow and steady economy was turned upside down. With government stimulus payments and higher wages, consumers had more money to spend. This, coupled with supply chain disruptions for products and services, has resulted in inadequate supply to meet current demand. Thus, prices are rising to counter the high demand for products and services. How will this affect the housing market?

Historically speaking, real estate investments tend to outperform the market during inflationary periods. In addition, long term investments, like real estate, tend to be safer investment vehicles during times of economic uncertainty. According to National Association of REALTORS® chief economist Lawrence Yun, property prices are likely to continue growing because of low inventory (as stated during NAR’s quarterly Real Estate Forecast Summit).

In short, inflation is a result of too much growth too quickly and an uneven supply and demand equilibrium. The rise in prices will help balance this supply/demand relationship and real estate should prove to be a smart investment during these uncertain times. The long term outlook for real estate is positive, making it a prudent investment now.

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