Inflation is currently at its highest rate since 1982. This is due mostly to the pandemic which caused global shutdowns and supply chain issues throughout the world. This supply chain blockage affected cat and home inventory, and construction materials to produce these products skyrocketed in price.
Building a home obviously requires lots of materials. Over the pandemic, the cost of these materials were raised exponentially due to the supply chain breakdowns. The price of lumber alone rose 114%! Labor costs were also increased due to the worker shortage that the country was experiencing. When stimulus checks were distributed, consumers began spending more money on goods rather than services which continued to contribute to inflation and prices to rise.
In these uncertain times, one industry seems to act as a hedge to protect people against rising prices and inflation rates: real estate.
Real estate has traditionally acted as a hedge against inflation for investors. This is because rental income increases with property values, values rise with inflation, and yet mortgage rates remain fixed. In 2020 and 2021 America saw the largest amount of homes sold since 2006! In 2021 alone, over 6 million homes were sold and the Case Shiller US Home Price Index rose almost 19%.
As the pandemic continues, housing inflation and real estate depend on coming policy changes. It is expected that demand for goods and services will balance which would ease the pressure on supply chains. Production could slowly recover, but for the time being the price for building materials remains high. With lumber and steel prices still remaining high, there are less people looking to build homes and more looking to buy pre-existing homes from a market of excited sellers. The predictions for 22 show an expected 6.6% increase in home sales and a nearly 3% increase in appreciation.
Real estate could be a safe bet to hedge against inflation. Learn more about the real estate market post-pandemic in the infographic below: