INVESTMENT

Critical economic indicators are fluctuating – are real estate investors affected?


There is a lot of confusion in the economy right now: inflation, unemployment, supply chain problems and more. As you know, what happens in the larger U.S. economy has significant implications for real estate investors.

Let’s review the three most important economic indicators — inflation, unemployment, and retail — and where they sit today and how they affect investors like you.

Inflation

Inflation is at the top of the minds for every type of investor out there. If you haven’t heard, inflation is a big deal now because it’s more than a decade old. It basically means that the prices of goods and services are going up, which consumers hate because it means you are losing money.

As an example, suppose you have $ 10, and that $ 10 can buy you your favorite sandwich — maybe a meatball sub, a turkey club, or a Cuban. But then inflation hit and the price of your favorite sandwich is now $ 15, which is heavy on your wallet. Now your $ 10 is worth only two-thirds of a sandwich when it was worth a whole sandwich. This is why everyone hates inflation.

Since January 2021, inflation has been rising. There are several reasons for this growth, but the main ones are the three stimulus packages in the last 18 months that have dramatically increased the supply of money to the US economy, which could affect inflation, and supply chain problems from Covid-19 to suppress supply to key industries such as semiconductors, cars and paper. Yes, even the paper is hard to come by right now.

But don’t get upset. Some seemingly good news has been emerging. Recent data points indicate that the rapid rise in inflation we are seeing may be slowing.

The number of core inflation – excluding volatile prices such as food and energy – rose only 0.1% in August. Broad inflation, including food and energy, rose only 0.3%.

And although it still exists, which no one wants to see, it is the lowest month-over-month inflation number since January.

To put it bluntly, in June it was 0.9% month-on-month growth – three times the number in August. Most decreased from travel and used cars.

Will inflation continue to rise?

It’s really hard to say what’s going to happen from here. For things like travel, which I think are being suppressed by the resurgence of the Covid case, I can imagine prices will recover over the next few months. Supply chain problems seem to be solving on their own, albeit slowly. This could offset rising prices in some industries.

This watch is going to be something. If inflation rises again, you can expect to see two main things.

First, we see large volatility in the stock market because inflation threatens returns and equity investors fear.

Second, the Federal Reserve will face pressure to raise interest rates. Raising interest rates is generally seen as a great way to fight inflation, so if inflation continues to rise, the Fed may raise their rates – which will lead to higher mortgage rates.

If inflation continues to fall, you can probably expect the Fed to keep rates low for another year or more.

Rental property investment protects against inflation

No matter what happens, remember that investing in rental property is one way — if not the best এক to protect yourself against inflation. There are several reasons for this.

First, housing costs continue to keep pace with inflation. When prices rise across the economy, home prices are generally consistent with inflation, if not exceeded.

Second, rental costs continue to keep pace with inflation. So when your biggest expense — your mortgage থাকে is flat, your income can increase. This is probably the best way to hedge inflation.

Third, real estate investing has a really high floor. By simply paying off your mortgage, you can earn 5% to 6% ROI, which should keep pace with inflation.

So just keep in mind that while inflation is detrimental to everyone, it is less detrimental to rental property investors. And if inflation is high, mortgage rates will rise-so locking in at a good rate now can be a great idea.

How to analyze the real estate market

Whether you plan to flip a home or buy and hold a property, an accurate real estate market analysis is the key to your success. That sounds irresistible, don’t be afraid. This guide explains how to analyze a market, which will help you decide if an individual asset matches your investment goals.

Unemployment

Let’s move on to our second economic indicator: unemployment.

Unemployment is going to be a very strange and confusing phenomenon. The big news is that recruitment fell dramatically in August, with non-firm wages rising by just 235,000 jobs. This may sound like a lot of jobs – and it is – but it has come down since July, when 943,000 jobs were initially announced, and then more than 1 million.

This is a huge drop. The initial thought is that this is due to the Delta variant. With the increase in cases, people are coming out less. Maybe job seekers are less interested in going to work, and some sectors like travel and food and beverage are probably not hiring fast.

There is some good news. The Department of Labor’s Family Employment Survey found that the unemployment rate in August still fell from 5.4% to 5.2%, the lowest since March 2020.

In other good news, wage growth rose 0.6% month-on-month, bringing annual wage growth to 4.3%. This is not enough to keep pace with current inflation numbers, but at least in August, wages rose faster than inflation. Let’s hope this trend continues as it will be a huge incentive for the economy as a whole, as well as for rental property investors who need to raise rents to offset inflation.

What makes me crazy is that by the end of August, there were still 10.1 million jobs in the United States so unemployment is higher than anyone wants, there must be enough jobs that those who want employment should be able to find work

In September, the federal government’s additional unemployment insurance benefits expired. It has long been speculated that the expiration of these benefits will be a catalyst for many people who have been out of work for a long time to return to the workforce. Numerous studies have shown that many people are earning more from unemployment than their previous jobs, so hiring has been a litmus test.

For real estate investors, the more employment, the better. It is the foundation of a strong economy, which supports financially stable tenants and wage growth যা which will help investors offset the effects of inflation.

I believe it is only a matter of time before the situation improves. With all these open job positions, I think unemployment will come down from 3% to 4% in the next six months.

Retail sales

Finally, let’s look at retail sales, a good indicator for consumer attitudes and spending.

In August, retail spending rose 0.7%, a fairly significant increase. This shows that while the Delta variant seems to have negatively impacted the number of jobs in August, it does not seem to be affecting consumer spending. There have been big gains in grocery stores, big box stores, furniture sales and a few more.

Although this metric is not directly related to real estate investment, retail spending forms a huge part of the economy. It is a good sign that it has grown so significantly in August that the US economy as a whole is ready for growth in the near future. And that’s always a good thing for investors.



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