Inflation in action is the general increase in prices over time, real estate inflation is the same concept, but applied to the housing market. It means that the prices of houses, apartments, and other properties are steadily rising.
Types of Real Estate Inflation
- Demand-Pull Inflation: This happens when there is a high demand for properties but limited supply, this intense competition drives prices up.
- Cost-Push Inflation: This occurs when the costs of building and developing properties increase. If the price of construction materials like lumber or steel skyrockets, builders will pass those costs onto buyers, leading to higher property prices.
How Real Estate Inflation Affects Each Party Involved
- Buyers: Rising prices mean the buyer needs a bigger down payment or a larger mortgage, which can strain your finances.
- Renters: Landlords may increase rent to keep up with rising costs, putting a squeeze on your budget.
- Investors: While inflation can decrease the value of your money, real estate can act as a hedge against inflation. Property values often rise alongside general prices, potentially preserving your wealth.
Factoring Inflation In Real Estate
- Increased Rents: Investors can potentially charge higher rent to their tenants like a grocery store or a clothing boutique, to offset their own increased costs (property taxes, maintenance).
- Property Value Appreciation: The value of the strip mall itself may increase significantly, leading to a healthy return on your investment when you decide to sell.
Conclusion
Real estate inflation, driven by both demand-pull and cost-push factors, significantly impacts all involved, from aspiring homeowners and renters facing affordability challenges to investors seeking to capitalize on appreciating assets and rising rents. While inflation presents hurdles for buyers and renters, it can offer opportunities for savvy investors who understand how to leverage real estate as a hedge against economic fluctuations.