Real estate has always been a popular investment option, and for good reason. When it comes to hedging against inflation, there are few investments as reliable as real estate. In this article, we will explore why real estate is considered the safest hedge against inflation, using historical data and current events to prove this point.
First, let’s define what we mean by inflation. Inflation is the rate at which the general level of prices for goods and services is rising, and, consequently, purchasing power is falling. When inflation is high, it can erode the value of your savings and investments. Therefore, it is important to find investments that can keep up with inflation and provide a reliable return.
Real estate has been shown to be a reliable hedge against inflation. According to a study by the National Bureau of Economic Research, housing prices have historically outpaced inflation. In fact, since 1890, the average annual return on housing has been 1.3% above the inflation rate.
One of the main reasons why real estate is a great hedge against inflation is that it is a tangible asset. Unlike stocks, bonds, or other financial instruments, real estate is a physical asset that can provide shelter, generate income, and appreciate in value over time. As inflation drives up the cost of goods and services, real estate also tends to appreciate in value.
Another factor that makes real estate a great investment is the ability to leverage it with borrowed funds. When you purchase a property, you can use a mortgage to finance the majority of the purchase price. This means that you can invest a relatively small amount of money and still benefit from the full appreciation of the property. With historically low interest rates, borrowing money to invest in real estate has never been more affordable.
Finally, current events also support the idea that real estate is a great hedge against inflation. Inflation has been on the rise recently, with the Consumer Price Index (CPI) rising by 0.9% in January 2022 alone. This is the largest monthly increase since 1982. As inflation continues to rise, owning a home can provide a level of stability and predictability in a volatile market.
In conclusion, real estate is widely considered the safest hedge against inflation. Historical data shows that housing prices have historically outpaced inflation, and the tangible nature of real estate makes it a reliable investment. Additionally, the ability to leverage borrowed funds and historically low interest rates make real estate a more affordable investment option. Finally, current events support the idea that owning a home is a great way to hedge against inflation.