Inflation may be our economic savior.
Inflation is coming. After years of the FED fighting it we may fall into its arms and welcome it. Everything being done to save us from economic collapse is pointing in that direction. All the bailout money, bank purchases, tax rebates, second half of the TARP money and the $900 billion economic stimulus package being debated and voted upon in congress are or soon will be pumping funds into the economy. This is happening in countries across the globe not just in the U.S. Governments everywhere are printing money and throwing it at the problem.
How will this help real estate? Inflation will cause the value of commodities like gold, oil and real estate to increase without any increase in demand. Real estate has the advantage of usually being leveraged through its mortgage. For real estate inflation will return a higher percentage return than other commodities. An interesting phenomenon is that the inflation will tend to reverse fortunes for some of the people who find themselves upside down in their mortgages and even prevent some future foreclosures.
Governments will probably conclude that this is a good thing. Individuals nearing foreclosure may be bailed out without any politicians having to vote for it. The distressed assets at the banks will gain value bailing out the banks before they have to mark assets to market value. Inflation can also reduce the impact of future debts like autoworker pensions, Social Security and national debt payments. I suppose after all these years we will learn to embrace inflation as our friend.
Unfortunately the widows, orphans and retirees (or would be retirees like me) will be adversely affected by this friend of the real estate market.
The concept for this post was included in a presentation before the Collin County Association of REALTORS monthly meeting by Britt and David Fair of Hexter-Fair Title. This interpretation is my own.