Inflation creates a general increase in prices and a decrease in the purchasing value of money.
As prices increase with inflation, so too does real estate valuations. Generally speaking, when inflation increases then housing and other real estate asset prices follow suit.
Using Real Estate as An Inflation Hedge
Historical data shows that real estate has been somewhat effective as a hedge against inflation.
However, remember that although real estate can be an effective inflation hedge, it is still subject to the same economic forces that drive inflation in the first place. Inflation erodes the value of money, which can reduce investors’ returns due to rising costs associated with mortgages, utility costs and renovations.