How Does Real Estate Perform During Inflation?

Is your house an investment? With housing prices on the rise, it sure seems like it is. But over the long run, it's a different story. On a Motley Fool Live episode recorded on June 17, Motley Fool contributor Matthew Frankel discusses the performance of housing returns over the long term and how it compares with inflation.

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Matt Frankel: I see one that I wanted to hit. It is the most upvoted one right there that says, "Historically, what has happened to real estate investments during inflationary times?"

If you're talking about long term, real estate tends to keep up with inflation. The average gain in home prices over the past 100 years is roughly three percent annualized. That's absolutely not what's happening right now. But if you look at over the past 100 years, the average is about three percent. The average inflation rate over the past 100 years is right around three percent. Over long periods of time, real estate, just like most other products, tend to keep up with inflation.

That's not to say anything about the short-term returns. Real estate right now is a target of inflation. As I think Brian mentioned, one of the Brians, I just say Brian, I get it right, every house in their neighborhood is up by 20 percent. It probably applies to both Brians. Real estate is a real "supply and demand" constraint right now so you're seeing inflation specifically affect real estate, but over the long term, the gains tend to normalize out with inflation.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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