The Impact of Inflation
The impact of inflation?
Inflation is the talk of the town—it dominates the news and the financial press.
Prices are going up on everything, and people always ask me, “What is the impact of inflation on luxury real estate?”
Let me back up for a second and create a baseline by asking you this question. What is most affected by inflation? Think about it. Give up?
There are two categories of things that are highly impacted by inflation. Number one is anything that comes out of the ground. And number two is skilled labor. In fact, skilled labor goes up the most in times of inflation.There are two categories of things that are highly impacted by inflation. Number one is anything that comes out of the ground. And number two is skilled labor. In fact, skilled labor goes up the most in times of inflation. Click To Tweet
What comes out of the ground besides food? Wood, steel, copper, aluminum, lead, plastics, and composites come from petroleum, which comes from the ground.
Think about these questions
- What is real estate?
- What is luxury real estate?
- What is a house?
- What is a building?
- What is a structure?
It is the greatest concentration of things that come out of the ground ever, combined with the scarce, skilled labor that puts it all together and makes it into a structure. You can see how inflation is going to affect real estate long-term.
Now, what is the only thing that can happen to the replacement cost of any real estate, primarily luxury real estate? I am not making predictions here, but doesn’t logic tell you that the only thing that could happen with prices is they continue to go up?
Existing home prices tend to track the replacement cost with minor dips and valleys along the way, but over time, existing homes track the replacement cost. What does that tell you about the likely long-term trend for real estate values? There is nowhere to go but up.
Again, I am not making predictions about the future. I am just asking you to follow along with this logic with me. Costs are going up. Prices, therefore, have to go up. Do you think these prices are going to come down?
Please share this with your client and maybe share it with a realtor friend as well. And do not forget to check out luxuryrealestateunplugged.com. It is the best one-on-one coaching in a group session you can find in luxury real estate.
Until then, make it a great week.