Mind-Blowing Real Estate Fact of the Day: Inflation
Unless you’ve been living under a rock, you know that we’re seeing some serious inflation right now. But is that a big deal? Not really, if you know how to react to it.
Real Estate has long been considered one of the best hedges against inflation, and for good reason. Over the course of time, nothing appreciates more reliably than real estate. So even as inflation goes up, the money that you have invested in real estate should be appreciating at an even higher rate than inflation.
In 2021, inflation rose at a rate of 7.5%, which is the fastest since 1982. But at the same time, Santa Barbara real estate appreciated at 24% YOY. So if you invested money in Santa Barbara real estate at the beginning of 2021, you would have something like a 24% appreciation on your money right now.
Contrast that to someone who keeps a lot of money in their savings account, which yielded less than 1% return in 2021. As inflation rises (+7.5% in 2021) that money in the bank actually becomes less valuable. So that money in the bank is worth about 6% less than it was last year (that’s an oversimplification but you get the point).
But when we see inflation in the greater economy, we usually see rapid appreciation in the housing market, like we’ve seen over the course of the past year.
So long as you’re aware that inflation is here to stay, and you’re strategic about how you hedge against it, you don’t have to worry too much.