The Inflation Monster

Hello Hampton Roads,

The real estate market and the stock market are at all time highs, but you know what else has gone up in price?  Pretty much everything. The prices for food, gas, lumber, new and used cars have gone through the roof.  From last year alone here's how much prices have risen: (source:
  • Fuel (oil) up 59.1%
  • Gas up 49.6%
  • Beef up 20.1%
  • Pork up 14.1%
  • Used Cars up 26.4%
  • New Cars up 9.8%
Why is this inflation happening now, you may ask--it all boils down to too much money printing. 40% of the money in circulation was printed just last year.  When too much money floods the system it cheapens the money that's already out there, and all that money still has to compete for the same amount of goods and services, so demand goes up and prices go up.  Plus, if there are supply chain shortages like we have, that drives the price up even more. 

The Bureau of Labor Statistics (BLS) recent inflation rate of 6.2% in October, based on their Consumer Price Index (CPI), was the highest rate of inflation in 31 years. Many believe that the CPI figure is too low because it doesn't include housing prices as in past years--it uses Owners Equivalent Rent (OER) instead. To determine OER, owners who own their primary residence are asked: 

            "If someone were to rent your home today, how much do you think it would rent for                monthly, unfurnished and without utilities?"

So it is their estimation of their home's monthly rental amount, which is not as accurate as home sale prices (which are also public record).  In fact, according to, if you compare inflation to how the CPI used to be calculated back in 1980, the rate is closer to 15%.

Think about this for a minute: Savings accounts pay nothing. The 10-year treasury pays 1.43%. If inflation is 6.2% then holding cash is costing you about 4.8%.  This means that the purchasing power of your money is going down and the dollar buys less and less.  Now if holding cash is costing you, the only way to preserve your purchasing power is to put it in assets whose value goes up more than the rate of inflation.

As this is a real estate blog, here's where housing comes in as hedge against inflation. Home values are contining to rise and the 30-year mortgage rate is still low, in the 3.5% range. As a buyer, taking out a 30-year loan to buy a home and pay it back in depreciating dollars puts you in the winning end of this deal. In an inflationary environment, hard assets lke real estate increase, and paying back a 30-year loan in depreciating dollars means you are paying the same numercial value for the loan but with fiat currency that is worth less and less!

Thanks for Reading,


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