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Inflation Getting Stickier

I shared a post on Inflation and Borrow recently that has garnered many questions. A few people asked if inflation would come back down to below 2%, and the answer is always 'it depends'.


What we can say is that even the FED is now predicting that inflation over the next year will at best look more like 6.6% and over the next year move down to 3.9%.


This may help keep house prices higher for longer and act as a support for housing, as lumber and other costs that go into building houses (oil and gas) remain high. This means your house 'replacement cost' is also higher - supporting your values.


Builders are in a worst cast scenario right now from the ones I've spoken with:


If rates go down, and costs go down builders can make a good profit.

If rates go down, and costs go up, builders can make a profit.

If rates go up, and costs go up, then builders may reduce building to avoid a loss.

If rates go up, and costs go down, then builders can make a profit.


If they reduce building it hurts inventory, which again supports house prices. They have a real memory of 2008 and it could cause them to alter their behavior just as inventory was starting to make a comeback.



Coaching Tips:


If builders get nervous they will slow their building of new houses. If they build fewer homes inventory stays low and increases the changes that housing maintains it's value during any recessionary drawdowns.


When inflation is higher there are a handful of investments that have historically outpaced inflation: You'll notice that real estate is one of the six assets that holds value during inflationary periods.



Data March, 2022 - Bank of America Global Investment Strategy Research


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