Personal Investment & Financial Planning Q`s/impact of inflation on housing


jon wrote at 2013-01-05 18:56:11
The short answer: in times of high inflation you buy instead of rent (actually you buy expection inflation to happen).

long answer: Ultimately real estate is a commodity~ it's solid, you can touch it and re-sell it. In an inflationary environment its commodities that are a hedge against the currency (ie: gold).  there is a finite supply of real estate but there can technically be an infinite supply of currency.  so on the flipside when you rent your currency is not purchasing anything and you are on the short stick end of inflation~ always paying higher prices which will probably more than outweigh any kind of interest return you could get on your capital to offset your loss on higher consumer prices.  Banks are not going to pay you more than they make on a loan.

For an extreme example think Germany post World War 1- a time of "hyper-inflation".  You always hear the lore of someone leaving a wheelbarrow full of money unattended and when they come back the wheelbarrow is gone but they left the money on the sidewalk- the wheelbarrow was the commodity.

Jon, Realtor in FL

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John D Smith, CFP


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