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If Real Estate Is An Inflation Hedge, Why Are Properties Declining In Value?

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US inflation was 8.2% in September. That’s down slightly from his 8.3% rate in August, but 8.1% more than economists had predicted for the month.

At the same time, the median average home price fell to $389,500 in August, compared to a June high of $413,800. But median home prices are still higher than they were a year ago.

over the years, real estate Recommended as a hedge against inflation. But how is that true when house prices are falling? Is real estate really an inflation hedge?

What Causes Current Inflation?

Inflation is an increase in prices that causes a decrease in the purchasing power of the dollar. For example, an item that was $5 in the store last year may cost him $5.50 this year. That’s inflation.

Inflation has risen significantly this year for several reasons. First, crude oil prices rose due to the war in Ukraine. A recent agreement between OPEC members will also cut oil production, which will affect the price of crude oil.

On top of that, the federal economic stimulus package during the COVID-19 crisis has injected a lot of money into the US economy. After the pandemic lockdown, life has mostly returned to normal. People are going back to work, eating out again, and his $2 trillion dollars saved during lockdown is now punching a hole in their pockets. There are still many shortages around the world as demand far exceeds current supply. As a result, prices keep going up.

Why is real estate promoted as an inflation hedge?

Real estate is recommended as an inflation hedge for many reasons.

  • Inflationary pressures have pushed home prices higher, but fixed-rate mortgages haven’t changed. Increases investor wealth in homes without increasing mortgage costs.

  • Renting out properties on short-term leases is especially beneficial during periods of high inflation. This is especially true in multi-family housing, where the annual turnover rate is almost 48%. If property owners can raise rents on a regular basis while keeping mortgage payments constant, there is an opportunity for increased income to offset rising inflation.

  • In the long run, real estate values ​​will rise despite economic ups and downs. Real estate prices he crashed in 2008-2009. However, in less than a decade, prices returned to pre-Great Recession levels.

If real estate is an inflation hedge, why is it declining in value?

Month-to-month changes in property values ​​do not create trends. Take the year 2022 as an example. House prices have fallen in the past few months, but are still 8% higher than they were a year ago. Given the reasons we’ve already discussed, real estate certainly acts as an inflation hedge for investors, despite its monthly ups and downs.

Read the following: Can’t Buy Property in 2022? Consider Partial Ownership and Invest for Just $100

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