Impact Of Inflation
When investors hear the term “inflation,” it can make them grind their teeth in frustration. It means that money is getting devalued, since goods and services are getting more expensive. This is the most prominent consequence or symptom of inflation, but there are other negative impacts of inflation as well. One of the biggest markets directly affected by inflation is the housing market. Whether it’s for investment or for residences, buying, selling, and building houses is more difficult when the inflation rate is on the rise.
Cost of Home Construction Increases
Inflation causes everything to go up in price. That means small items like your groceries, and larger items like the materials that are needed to build new homes. All things in a house plan are affected; bricks, concrete, roofing materials, drywall, flooring, and construction labor. When the cost of the materials goes up, the cost of building a home goes up. Once the home is built, it then needs to be sold for a higher cost for the builder to recoup that money.
Soaring Home Prices
We’ve covered that when building homes gets more expensive, then that cost gets passed down to home buyers. However, that’s not the only reason that inflation will make home prices increase, sometimes dramatically. Inflation is often the result of there being more money in the economy. With more money in the economy, home prices will automatically go up.
Less Financing for Homes
The financing that many potential home buyers need is affected as well. When inflation is on the rise, interest rates tend to rise as well. This means that it is more expensive to get financing. The result is that fewer people will finance, and if they do, they will borrow less than they would have before. With fewer people able to finance their home purchases, the housing market and even the entire economy can get stunted. Fewer buyers, and less money for banks in the form of interest payments.
Why Protecting Against Inflation Is So Important
As inflation goes up, it’s important to make smart investments that will help to protect you against its effects. By hedging against your inflation, you can keep your portfolio strong and help it to continue growing during a high inflationary period. Real Estate can continue to be a smart investment, as long as you take the steps to protect yourself and your portfolio.
Consult With a Professional
You need an inflation hedge. Otherwise, you could be dampening your potential financial growth. To make sure that rising inflation does not stunt your portfolio, talk to your money market manager or financial advisor. Even with inflation, new home sales are booming with our rising economy. If you’re considering building a new home this year, don’t hesitate to give us a call or email about choosing the right house plan for your property.