How Does Real Estate Perform During Inflation?

Is Your Home An Investment? With real estate prices rising, it seems that way. But in the long run it looks different. On a Motley Fool Live episode recorded on June 17th, Motley Fool writer Matthew Frankel discusses the long-term performance of property returns and how they compare to inflation.

Matt Frankel: I see one I wanted to meet. It is the most recommended that says, “What has historically happened to real estate investments during inflationary times?”

When it comes to long-term real estate, real estate tends to keep up with inflation. The average increase in home prices over the past 100 years is about three percent annualized. That is absolutely not the case at the moment. However, if you look at the last 100 years, the average is around three percent. The average inflation rate over the past 100 years has been around three percent. Real estate, like most other products, tends to keep pace with inflation over long periods of time.

That says nothing about the short-term returns. Real estate is currently an inflation target. Like I think Brian said, one of the Brians, I’m just saying Brian, I get it right, every house in their neighborhood is up 20 percent. It probably applies to both Brians. Real estate is a real “supply and demand constraint” right now, so you can see that inflation is affecting real estate specifically, but in the long run, profits normalize with inflation.