Orion’s brokers tell us that your clients see a lot of news about inflation in the media. But is inflation a bad thing? Or is a little okay? How does it impact your client’s home prices, or your rate lock with Orion? Let’s take a quick look.

First of all, if you or your clients believe that we’ll see an inflation-driven loss of purchasing power, to protect yourself, look to own assets that appreciate with inflation. These assets include real estate, gold, stocks, and, more recently, bitcoin. Brokers recommend that their clients own homes because we all need a place to live. But assets purchased to protect wealth against rising inflation are referred to as “inflation hedges” and have been part of many individuals’ portfolios for many reasons.

“Inflation” is not bad in itself. It is an economic term that refers to a general rise in the price of goods and services in an economy. Central banks and economists measure inflation by calculating the rise in the average price of a basket of goods and services. Because prices are a function of supply and demand, all else being constant, an increase in the money supply (i.e., greater demand) can increase the general prices of goods and services.

Last week we saw several measures of inflation that were stronger than expected. The inflation rate is an easy gauge, or a “proxy,” for understanding how much the average household’s cost of living rises per year. Inflation attempts to quantify how much more it costs to buy everyday goods, such as gas, groceries, hygiene products, and other common consumer goods, relative to how much they cost in the past.

Investing in real estate is a popular inflation hedge because property values tend to increase along with the cost of renting. This property value rise occurs because input costs(e.g., raw construction material such as lumber, nails, the hourly wages of carpenters) rise with inflation, and higher interest rates brought by rising inflation will push builders to demand higher home prices to offset borrowing costs. All these dynamics create a positive feedback loop that acts as a tailwind for your homeowners.

Orion’s management reminds brokers that there is no guarantee that housing prices will always increase. Many areas took a pause, or a dip, between 2008 and 2012. But property values have historically performed better than many other investments. And as mentioned above, brokers should remind clients that we all need a place to live and Orion is here to help!

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