Some are puzzled by the recent uptick in real estate sales activity. Why? Like gold, real estate is a hard asset and hard assets fare well during inflationary times. While inflation dropped dramatically from its high's over 9% in June 2022 to 3% a year later, the writing is on the wall that inflation could remain sticky for some time to come. Here's why:
1. Tariffs are bound to raise prices on many goods including materials used for building lots of stuff including homes. Will the manufacturers pass on this cost to consumers or pick up the tab?
2. In a low birth rate environment, immigrants fueled population growth. With much lower immigration, chances are population growth will pause.
3. The skilled labor population is shrinking as it ages. Immigrants (documented and otherwise), are a huge force in US commerce, especially as it relates to more affordable labor. Texas alone is estimated to have around 2 million undocumented workers. Expect labor costs to rise.
4. Deregulation could offset some of these higher costs but chances are corporations will not pass these savings on to the consumer. This could keep corporate profitability strong which benefits investors and owners.
5. Lower tax rates for individuals and corporations could put more spending capital in the hands of the consumer and corporations: we saw how that played out during covid with stimulus and savings fueling inflation.
Then of course, like all good predictors, I should add, "but it all depends". Yes, all the above could prove to be wrong. There are so many factors that contribute to the above that could change or shift. Hopefully if economic growth rises it could offset higher costs, but that could take a while. If you think it takes long to build a house, know that it takes much, much longer to build a mine or factory!
