The I word
Investment? Income? Interest?
Actually, INFLATION. The dirty little word, just there alongside Recession. With the Fed now pouring money into the US economy by expanding its balance sheet to more than $2 trillion in order to stimulate the economy, there’s have been more than a few economists starting to talk about INFLATION. The large Fed infusion could result in an upward pressure on prices across the board, thus creating an inflationary spiral.
This is not something we should think about conceptually. I have Northern Virginia home buyers and real estate investors considering such a scenario when they think about what the next solid investment could be — ie, where to put that cash they got out of the stock market in time enough to save at least a portion of it.
If inflation does take off, who would win? Property owners certainly, because the cost of what they purchased today would go up. Who would lose? People who want to buy during that cycle, as prices go up and interest rates go up. High inflation usually brings high interest rates, because lenders will charge a higher rate to compensate for the loss in purchasing power.
DISCLAIMER: I am not an economist, nor do I pretend to be. I just try to provide a sense of what I hear about what’s going on with real estate. As far as I can tell, the market swings back and forth, just like a see-saw. That board only stays balanced in the middle for a very short time.
Please share your thoughts about the prospect of inflation — I would really love to hear them.