How does inflation real estate values?
The relationship between inflation and real estate values is
very complex and has generations of economists and analysts have been
investigated. Inflation, means obviously a time when wages and prices of goods
increase, but is deflation of a period being reduced wages/employment/prices
(in conjunction with lack of economic activity). Economic activity, interest
rates inflation, and real estate values are closely related, but the
relationship is complex and subtle inter plays between all these factors
include macroeconomic cycles.
Inflation
Modern economic theory according to some inflation is a good
thing, but much inflation is a bad thing. Some inflation is good, as it signals
/ of economic growth, but too much inflation (i.e. too fast growth) results
often leads to speculative asset bubbles such as a housing bubble, the collapse
of which can have significant negative economic impact.
Business cycles
Modern economies are cyclical. The reasons for this cyclical
nature and the exact nature of economic cycles remain unknown, but economists
have learned a lot about the factors that are involved in business cycles and
begin to understand the nature of the relationship between them. It is clear
that inflation increased results from economic activity in terms of that more
activity results in more money into the economy, increasing demand for products
and services produced. However, there are fewer people to produce these new
products and services so that you, to work that eventually drive the price of
the goods or services they have to pay more them.
Interest rates
A further basic principle of modern economic theory is that
low interest rates encourage economic activity and create growth (supporting
prices) and high interest rates to keep growth. This refers to the availability
of capital and the fact that all companies need to grow capital. So interest
rates both an indicator used for the current level of economic activity and a
tool for Governments, to control economic activity and therefore by proxy
inflation as well as. The great recession of 2008-2010 shows that this cut as
Governments around the world (including in the United States) to less than 1
percent interest for a long time, to stimulate economic growth. Rising interest
rates apply, that a negative discouraged for real estate values as higher
borrowing.
Inflation and real estate values
During the historical rule, that real estate is a good asset
class, even in times of inflation, this is true only in a relative sense and is
again closely related to the economic cycles. Generally, investments in real
estate, especially at the beginning of the inflationary cycle will not do.
Because the income in connection with real estate (rent, etc.) generally do not
increase to increase property values, which usually does not occur until an
inflationary cycle has been clearly demonstrated (several months or even a year
or longer). It boils down to which reflect in higher values like rising early
in an inflationary cycle, but it needs time for this effect 'trickle prices for
food, clothing, and that up'. But too much inflation (hyperinflation) too long
will wreck an economy through the devaluation of the currency (leads to
recession/depression and low real estate prices).
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