You can forgive those responsible for the Southeast Michigan family shopping if they tend to be suspicious when we go for long without hearing much about inflation. Last Wednesday’s Associated Press headline, “Yes, your grocery bills have gone up,” probably confirmed their feeling from recent supermarket forays. Earlier, the AP had already reported a summer surge at the nation’s grocery stores, illustrated by the fact that July rang up the biggest monthly gain since late 2018. September’s rise (.4%) “was bigger than economists had been expecting,” constituting the sharpest rise since May, which was when pandemic-triggered shutdowns at food processing plants caused a 5.6% spike in prices.
Yet, inflation-wise, Southeast Michigan home budgets have emerged relatively unscathed this year. A combination of economic forces has caused the overall inflation rate to remain quiet for the moment. With this month’s release of Federal Reserve meeting notes having restated their governing board’s intent to continue to support an inflation target of “at least” 2%, it was clear that galloping inflation is not on the horizon. Of course, that’s for now—later is another matter.
In the grander scheme of things, Southeast Michigan homeowners should view inflation’s inevitable eventual return with less alarm than non-homeowners. A recent Forbes article on the subject (“How to Fight Inflation Through Real Estate Investing),” points out why, since “inflation is inevitable,” that’s true:
• Appreciating value. Since, on average, property values have appreciated between 3% and 5% annually, they “not only kept up with inflation…but they’ve added value and gained appreciation.”
• Increasing income (rents). For landlords, inflation is accompanied by increasing rents, which “will not only cover your monthly expenses…but will also generate $100-$400 per month in cash flow.”
• Depreciating debt. At the same time that “your real estate asset is appreciating in value, your debt owed on the property is actually depreciating in value.” An example given was a $750 mortgage payment that, with inflation, was worth far less ten years later—an effect that continues to build.
Those three are potent reasons why Southeast Michigan real estate investments are considered reliable hedges against inflation—not just for landlords, but for regular Southeast Michigan homeowners, as well. Of course, they also get to live in their investment!
Call me anytime for expert advice on all your Southeast Michigan real estate dealings