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How Inflation Is Affecting The Local Real Estate Market

10/18/2022

Central Florida still boasts a brisk real estate market, but the winds are clearly shifting. And while the market still leans in favor of sellers, it’s showing signs of returning to a more balanced housing market.

There’s been a lot of talk in the news lately about inflation and how it affects the housing market. Though experts say it’s generally impractical to predict real estate’s future course, it can be helpful to understand how inflation affects local real estate markets.

If you’re unsure how inflation’s effect on the housing market could impact you, the real estate experts at Bee Realty Corp can help. We’re a local real estate brokerage company whose team members can guide you on the best ways to hedge against inflation and answer your questions on how it could affect your investment.

What Happens to Real Estate During Inflation?

Have you ever lamented over how, not so long ago, you could go to the movies and buy popcorn and a drink for under $10? That’s inflation: the rate at which prices for goods and services increase.

Inflation typically occurs due to changes in monetary policy, like when the Federal Reserve sets interest rates too low or the money supply grows too quickly. Though high inflation can indeed be harmful, inflation in and of itself isn’t usually defined as good or bad, as it can also be good for the economy.

When inflation rises, dollars are worth less than they were in the past. As a result, purchasing power is decreased, and people need to increase their incomes to maintain their usual standards of living. In real estate, inflation has an impact on home buyers and sellers as well as real estate investors and landlords, meaning no one is immune to its influence on the market.

Housing supply and demand are significant contributors to inflation’s impact on local real estate markets, and property owners or sellers typically enjoy the most benefits. That’s because, during inflationary periods, buyers are often willing to pay more for housing. And as inflation also increases the cost of land, building materials, and labor for constructing new homes, new construction is often curbed, increasing existing property values.

For real estate investors, finding reasonably priced properties and expanding their rental businesses becomes more difficult during inflation. For instance, rising interest rates make money more expensive to borrow. Still, there are ways to invest in real estate during high times of inflation.

For instance, you can:

  • Use real estate as a hedge against inflation by charging higher rents while still making the same mortgage payment, resulting in higher profits.
  • Take advantage of short-term lease agreements by raising costs.

Is Now a Good Time to Invest in Central Florida Real Estate?

The good news is that real estate, including single and multi-family homes and commercial properties, has historically been a stable investment during inflationary periods. That’s primarily due to an increase in the number of renters who aren’t financially positioned to purchase new homes. It’s true that investors must always consider their need for liquidity, tax strategies, and the time they have available for real estate property management, but when prices rise, real estate can often be a favorable investment.

It’s never easy to predict what the local real estate market will look like, but many experts foresee an increase in demand and higher home prices through the end of 2022 and beyond. At Bee Realty Corp, we believe real estate is one of the safest and most reliable investments you can make for the long term. And our Certified Investor Agent Specialists are dedicated to helping our clients make the right investment decision.

Ready to learn more? Contact us online or call us at 386-279-7522.

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