Inflation And Real Estate: Something Has To Break
Inflation still hasn’t stopped. Regardless of the official numbers being reported or restated, real inflation in the street seems like a runaway train that has to hit a wall and crash eventually.
Hiking interest rates was supposedly the way to kill off inflation. Of course, it only fueled it instead.
Interest rate increases alone haven’t been enough to achieve goals, so, we now have other things, like higher taxes, more taxes, and minimum wage hikes of as much as $33 being floated in some places.
Something Has To Break
History, and the state of many other countries tell us that inflation can go a whole lot higher. Fixed rate, long term loans can disappear altogether. Mortgage interest rates have and can go above 20%.
Things can be made so expensive that just being able to afford food and toilet paper is hard.
When you can’t walk out of the ‘dollar store’ without spending $60-70 for a few snacks or a day and a half of food, nor run into the gas station without spending that much, it’s going to be a problem. Even with a $15 an hour minimum wage, that’s a day’s worth of work. Not counting housing, insurance, or utilities. All of which are going up too.
Then, not only are interest rates going up, but so are overall loan and borrowing costs. For those that can afford homes, now even putting in a few plants is a luxury expense many won’t be able to afford.
What exactly will break, when, how, and how badly will have to be seen, but it doesn’t appear to be sustainable. At least not while maintaining the lifestyles Americans have become accustomed to over the past couple of generations.
$190B In Real Estate Debt Being Sold At Discounts
According to Bloomberg, there is $190B in real estate debt being sold off at discounts around the world.
There are likely a variety of reasons for this. Chiefly being highly motivated sellers. While physical property values may not have changed, financial positions have.
Some are liquidating because they failed to plan and prepare for moments like these and are losing money. Others can’t get any more credit to stay afloat. Some just want more cash on hand. Or the banks that have failed have seen their assets literally bought for pennies. Which can now be cashed in on.
Interestingly, most real estate pros you’ll speak to will say that housing prices are still strong. In some pockets of the country there is more demand than ever. Open houses are busy, and are attracting multiple bids. There are cash buyers who still feel rich, coming from more expensive destinations, to new ones with lower taxes, and less crime.
So, there is currently this sweet spot, with inflation tragically bankrupting many businesses and families. Which means discounts on real estate. While strong demand means there are still great profit margins on wholesaling houses swiftly.
Those that take advantage of this, will find it is what keeps them and their own finances ahead of inflation.
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