The Influence of Inflation on Real Estate Markets

Inflation has an enormously detrimental impact on the economy as a whole, pushing prices of goods and services upwards – an effect which has ripple effects across various sectors, such as real estate.

Real estate investors, homebuyers and sellers should understand how inflation affects the real estate market to make informed decisions when purchasing or selling real estate.

We aim to explain what causes inflation and its effect on real estate investments; and provide insight on how real estate investors can prosper even during times of high inflation.

Understanding Inflation and Its Sources
When your dollars don’t stretch as far anymore, inflation could be at play. A combination of increasing money supply and debt levels are behind high inflation levels.

Over time, central banks have significantly expanded the money supply. As a result, more dollars are floating around, meaning companies selling goods and services can charge higher prices as people theoretically have more spending power, although incomes usually stay static enough for inflation to take place.

An economy that fails to keep pace with its money supply can result in inflation. Companies aren’t producing enough goods for demand and thus charge more for what they produce.

To combat inflation, the Federal Reserve often raises interest rates to encourage consumer spending cuts and stem rapid inflation.

As people reduce spending and borrowing, businesses can replenish and build supplies more easily; however, after an episode of high inflation the economy can take several years to regain stability or grow again.