How inflation is good or bad for the real estate market

July 31, 2013
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Look around South Windsor and around the country , you will see home selling and selling faster than in the past. Prices are starting to rise as well. Let’s talk about Normal inflation, or the Federal Reserve’s target of around 2% inflation*, can be good for real estate, in general. High inflation is usually bad for all assets, as was seen in the 1970’s and 1980’s.** As inflation rises, rents charged to tenants can be adjusted higher to mitigate any negative effects to income. Dually, the underlying value of the real estate will adjust higher as its income-producing properties are not harmed. In a stable inflationary environment, real estate should do well.





* (Federal Reserve’s Statement on Longer-Run Goals and Monetary Policy Strategy)


** (The Inflation of the 1970s, Brad DeLong, University of California at Berkeley and National Bureau of Economic Research)