1982 was the last time we witnessed inflation that was as high as the one we’re facing now. The prices of our everyday essentials have soared and will probably stay inflated for a while. Some are considering investing in real estate to beat inflation, but is this really the right move?
Inflation is having a profound impact on those trying to buy a new house as major regions of the U.S. currently tackle the growing housing unit gap. 2020 and 2021 saw high levels of homes being sold with over 6 million homes being sold in November 2021 alone. This is further reflected in the rise of the Case Shiller U.S. Home Price Index.
The inflation can be considered the result of the supply and demand crisis caused by the pandemic, which has also led to the decline in housing inventory. The housing/real estate industry also suffered from supply shortages, rising labor costs, and increasing prices of construction materials. This along with quotas being placed on steel and aluminum complicated the construction process even more.
Consumer spending increased during the pandemic as multiple stimulus checks were provided to the public. However, demand was mostly focused on goods rather than services, causing a supply and demand imbalance that has persisted in the form of inflation. People cannot clearly predict all of the effects of the imbalance, but it is clear that factors contributing to inflation will continue to persist for at least a year.
The future of the economy is heavily dependent on COVID-19 because if the impacts of the pandemic start to ease, production could slowly regain regular momentum while the demand for goods and services will smooth out, allowing supply chains to work back to a normal flow. Nonetheless, costs of certain materials will remain high while home inventory continues to decrease and interest rates increase. However, this provides a good opportunity to invest in real estate like commercial real estate (CRE), which is a long-term investment that allows you to get a 1.1% return in private CRE, or real estate investment trusts (REITs), which own and finance income-producing assets.
Metaverse, a new and speculative venture, also offers real estate investments. With multiple investment options available, what’s stopping you from seeking comfort in real estate?