See How Inflation & Consumer Sentiment Affects the Real Estate Market

See How Inflation & Consumer Sentiment Affects the Real Estate Market | Blog | InvestingTE.com
See How Inflation & Consumer Sentiment Affects the Real Estate Market | Blog | InvestingTE.com

What are the effects of inflation in today’s economy? 

Many have spoken on this topic and this will effect us all. 

Today we will express our opinion on the topic and predictions moving forward.

Inflation refers to a general progressive increase in prices of goods and services in an economy. 

This is captured in the consumer price index (CPI) and is used as a relative measure to gage the economy’s current state. 

It’s interesting to use an inflation calculator, that references the CPI over time, and delivers the variance in the dollar’s value compared to other years.

When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. 

The opposite of inflation is deflation, a sustained decrease in the general price level of goods and services. By definition this is what an economy faces when inflation or deflation occurs.

So what is causing today’s inflation?

  • Lack of labor support across most industries due to the effects of COVID-19. This is directly related inventory levels and supply chain’s inability to import and export at demand levels.
  • Stimulus packages that allowed us to sustain normalcy in the meantime, must be recuperated somehow. It doesn’t mean that all funds will be recuperated from the citizens, but our government has to have a plan to increase revenue in order to recuperate that money.
  • Note: The housing shortage has not caused inflation, but it has a direct effect on the economy because the single family home has been one of many, top performing tangible asset classes, next to gold. 

So let’s cover some key topics that surround our current state and what recovery may look like in my opinion.

Employee Sentiment

Macro Investments LLC: Real Estate - Inflation, Economy & Sentiment (Real Estate Investing & Business Operations Education)
See How Inflation & Consumer Sentiment Affects the Real Estate Market | Blog | InvestingTE.com

During the time that we had to sit and collect our thoughts, while under lockdown or quarantining, we have had time to reflect. 

Unemployment pay exceeding the normal pay was a surprise and revelation to many. “Am I valued?” many citizens thought, as they collected money sitting at home that they couldn’t earn while actually working.

The revelation citizens recognized, during lockdown, brought on new sentiment and later demands. 

Employees not only wanted to confirm appreciation, but fair compensation for risking their health (or life), was now a hot topic.

Remote working took off in order to sustain stability, while others who lacked the option to work remotely may have slowly lost their establishments. Congratulations to those who didn’t…

Even now, after 2 years of the first COVID-19 case being recognized, employers and employees are still figuring out fair compensation. 

Incentive pay, bonuses and raises have all occurred during this trying time. Yet, we have not accomplished filling the labor gap and we have yet to hear from company leaders on what the new workforce will look like going forward. 

Entrepreneurialism

Macro Investments LLC: Real Estate - Inflation, Economy & Sentiment (Real Estate Investing & Business Operations Education)
See How Inflation & Consumer Sentiment Affects the Real Estate Market | Blog | InvestingTE.com

We cannot overlook this highly digital era, and the many entrepreneurs social media has produced. 

It is evident that young adults nowadays are less inclined to work for someone else with the huge emergence of income stemming from drop shipping, social media influencing through YouTube, Instagram and Facebook, and the affiliate marketing by-product of social media.

Not to mention, the huge increase in financial literacy people have been able to attain, (much more efficient and effectively than before) through YouTube.

The information era was and still is a huge proponent to knowledge being consumed much more rapidly than anytime in history.

When you consider all these components have been fully underway for practically 10 – 20 years, and then add the effects of COVID-19, you have a huge catalyst to the lack of labor issue.

In order for enough employees to return to work, there will need to be several changes to what the normal workforce will look like going forward.

Supply Chain

Macro Investments LLC: Real Estate - Inflation, Economy & Sentiment (Real Estate Investing & Business Operations Education)
See How Inflation & Consumer Sentiment Affects the Real Estate Market | Blog | InvestingTE.com

With the lack of labor, although it took for time for the general public to notice, it has affected our ability to fulfill orders from one vendor to the next. This also relates to international importing and exporting. 

As supply chains encounter low supply levels, the cost of the products increase. 

In return, this affects the consumers directly and the dollar does not go as far as it did yesterday. 

Supply chains have expressed at least a year before they will be back on course.

However this timeline is only applicable if adequate labor can be obtained sooner versus later.

Banks – Home Loans vs Development

Macro Investments LLC: Real Estate - Inflation, Economy & Sentiment (Real Estate Investing & Business Operations Education)
See How Inflation & Consumer Sentiment Affects the Real Estate Market | Blog | InvestingTE.com

Banks rely heavily on lending money and opening accounts. The the balance of the two components changes as either one becomes out of balance. 

The effect that borrowing will have due to the lack of housing for consumers to purchase, will affect the profitability to banks.

There is definitely and imbalance here and banks will primarily need to counter the balance with opening accounts. This is especially true if the developers don’t begin to borrow, to compensate for the home buyers lack thereof.

You must consider that banks will not lend to as many homeowners since home buyers are forced to rent due to the lack of housing. However, banks will be able to lend to developers. 

Lumber prices were just reported as being back on the incline. See the latest news on ourย Real Estate News page hereย – ย Lumber Continues Its Wild Ride With No End In Sight: Sherwood Lumber COO.ย 

This will affect the cost of building and the end-cost to the consumer. As prices fluctuate, builders are challenged with being able to lock-in home costs to the consumers.

This creates difficulty in pursuing plans of building for developers, being that the price to build today will be different next month.

Whether developers will proceed or wait until material costs are stable is unknown. 

Commerce to the banks will be an interesting story in the years to come. We don’t think they will have a choice but to adopt cryptocurrency although a decentralized market. We shall see…

Housing, Construction & FED Raising Rates

Macro Investments LLC: Real Estate - Inflation, Economy & Sentiment (Real Estate Investing & Business Operations Education)
See How Inflation & Consumer Sentiment Affects the Real Estate Market | Blog | InvestingTE.com

With housing supply being short on supply, and no pulse on the production of housing supply rates in the next year or two, supply issues will continue to have a direct effect on home prices. 

If supply is low and demand is still high, which it will be in the short term, home prices should not decline in value. There will be less buyers, but demand and supply will still be imbalanced, in favor of sellers.

We also have to consider that if the entire economy is facing labor issues, including supply chain, the FED has to be very careful of when (and if) they raise rates. 

If rates are raised, with consumer products already being inflated, the ability to buy homes would also decrease. This will hit the banks even harder with less commerce, affect consumer sentiment more, and reduce spending or commerce. Nothing would be affordable.

With less supply fulfillment on hand to support sales, due to the labor issue, and employers paying employees more, many companies will face big challenges in being sustainable.ย We are dealing with many delicate topics as you can see.

Ultimately, if the FED is going to cause a direct effect to a booming asset class, the single family home by raising rates, they’d better have an income producing replacement. Perhaps this will be cryptocurrency…

Regardless, cryptocurrency will not answer any concerns soon enough. So my prediction is that rates may increase, but they won’t increase that much (under 200 basis points, 250 points max over several years). 

If the FED doesn’t increase rates much, the value of houses will not be affected. We think at 300 basis points, then the value of housing could see a dip, but not in the short term.

Housing supply will be an issue for at least 5 years, so a value dip will be difficult considering my hypothesis of how much the FED can actually raise rates without effecting the entire economy. 

  • Overall, we think the FED will delay rate increases as long as possible, and when they do raise it will not be at a high margin. It will be at minimal increments, may occur for several years once started, but will not start until the latest possible date.

This sentiment is based upon inflation being present in the rest of the market now.

If labor issues aren’t corrected by the end of 2023, then rate hikes could occur sooner, but my estimate is it will occur into 2023, 2024 and 2025.

Conclusion

Macro Investments LLC: Real Estate - Inflation, Economy & Sentiment (Real Estate Investing & Business Operations Education)
See How Inflation & Consumer Sentiment Affects the Real Estate Market | Blog | InvestingTE.com

Overall, we see home prices remaining stable in the short term and possibly taking a slight dip as inventory increases and rates increase. 

Generally, we see a long term flatline of home values for the next decade with consistency to the ballpark values we are seeing today.

If you are not in an emerging market, the housing market will remain relatively flat for a long time. 

Consumer products will stay at a higher cost for likely 3-4 years, but possibly longer if labor takes too long to correct.

Spend your money wisely and create income producing habits to the best of your ability. The dollar will be challenged to go as far as it did pre-COVID for a long time to come.

Thanks for joining us today faithful readers – future leaders.

Love ya and keep striving for growth.

Please comment your thoughts on today’s article.

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