How Does Inflation Affect Real Estate?
Inflation, as you know, means your money is devalued. This can be alarming to many investors. The direct effects of inflation are obvious enough – increases in the cost of goods and services – but there are also many other negative (and even some positive) effects to consider.
When inflation hits, there is an increase in the cost of construction. We’re currently seeing an increase because of COVID-related shortages in materials, but rising inflation could bring more. When the cost of materials goes up, so do new home prices.
Inflation also causes money to become more expensive to borrow. When loans become more expensive, fewer people get them, and this can flatten economic growth.
With all these negative effects, what could possibly be positive about inflation? Inflation means the people who own property see more equity gains. Real estate can be great protection for your portfolio during inflation, and the longer the inflation lasts, the more your home value benefits.
Nationally, some markets are beginning to slow. We don’t see a significant slowdown happening in the Nashville market at any time in the near future. The thousands of jobs being brought by Amazon, AllianceBernstein, Oracle, Ford, and others will attract new buyers to the Midstate area for years to come. Even a hike in mortgage interest rates won’t deter new folks from coming here so the outlook for Nashville real estate remains quite sunny for sellers and will continue to be a challenge for buyers.
Have you considered buying a new home or investing in a rental property to prepare for your retirement? We’d love to speak to you about your plans.