Inflation is coming – how will it impact the real estate market?

There’s little doubt inflation is coming. By some measurements, it’s already here. The question is: How do you proactively hedge your portfolio against this value crusher?

If history is any guide, private real estate is the heavyweight champion of inflation hedging compared to alternative investments

To better understand what lies ahead, we need to understand how we got here, and why real estate tends to perform well during periods of high inflation.

What is inflation?

Nobel prize-winning economist Milton Friedman once said: “Inflation is taxation without representation.”  

That’s because inflation is primarily a function of federal policy on things like interest rates and price controls. These things have the ability to erode your purchasing power significantly, and the decision makers are appointed, not elected. 

Inflation is often the product of increasing the supply of currency without a corresponding increase in economic output. 

It’s important to understand that the value of anything is dynamic and relative. Economists assess the value of a currency against things like other currencies, the cost of goods, and asset pricing over time.

As costs increase – particularly on fundamental commodities like oil, timber, or metals – purchasing power decreases. Inflation is afoot.  

How is inflation measured?

Economists have created several models to calculate the rate of inflation. 

The federal government has two ways of measuring inflation. There’s:

Inflation rate: Poorly labeled, what is often referred to as the ‘inflation rate’ is actually an index that measures the rate of change in inflation compared to the previous period (year over year, for example).

Consumer price index (CPI): CPI is a calculation based on the prices of consumer goods across various sectors, such as the cost of energy, groceries, housing, etc.

CPI is the metric that impacts the average American directly, as it is based on recurring household expenses.  As the cost of these goods rises, Americans feel the pinch.

In April 2021, Federal Reserve Chair Jerome Powell announced that the consumer price index had clocked in at 4.2% for the month. 


That’s the highest monthly rate of increase since 2008 – and we all remember what happened in 2008.

Inflation on Wall Street

This increase was expected. The Federal Reserve printed trillions of dollars in order to address the economic fallout due to shutdowns ordered in response to COVID-19. 

It’s hard to be economically productive in lockdown. As a result, the output of the United States (GDP) went down by 2.3%.  Not bad, all things considered.

Yet, the S&P 500 – an index that reflects the 500 biggest companies in the U.S. – gained over 16% during the same period.

Peel back another layer of this onion and things get even more eye-watering. 

Price-to-earnings ratios (PEs) are used to assess how expensive a stock is relative to the underlying company’s earnings. The higher the PE ratio, the more expensive the stock is. 

Between January 1, 2020 and January 1st 2021, the S&P 500’s overall PE ratio jumped from 24.88 to 40.3. That’s just shy of a 40% increase. 

S&P 500's PE ratio (2010-2020) (1)
Data source: multpl

Clearly, gains were not based on the improvement in performance of the S&P 500 companies, but on an influx of capital into the markets.


The logical explanation for this disparity is that a considerable portion of the newly minted greenbacks found their way into the stock market. 

Stocks simply got more expensive. Investors need more capital to buy the same amount of shares they did in 2019 without the fundamentals of the companies backing that price hike. This discrepancy reflects inflation. 

Inflation on Main Street

As asset and commodity prices increase, the purchasing power of the dollar declines. 

It’s a sneaky force that debases the value of your savings account. 

The cohort that ends up paying the heftiest price for inflation are wage and salaried workers – particularly if they don’t own assets that appreciate in value. Wages haven’t historically kept pace with inflation, let alone during years of elevated levels.

Put it this way: If you had $10,000 sitting in a savings account in April 2020, you’d need to have $10,420 in there now to buy the same amount of goods this year. 

And that’s only if you trust the numbers reported by the Federal Reserve. 

Other economists, including famed contrarian investor Michael Burry – who foresaw the 2008 Financial Crisis – believe the real rate of inflation is significantly higher than the numbers reported by the fed.

Michael Burry Twitter
Michael Burry Twitter

Real estate as an inflation benchmark 

In addition to the S&P 500, the real estate market serves as a reliable benchmark for inflation indexing. That’s because the need for housing remains fairly consistent, and the supply grows slowly.

According to a report by Zillow, the housing market gained 7.4% in value during 2020. Furthermore, Zillow projects this trend will not only continue, but accelerate throughout  2021.

If you own property, that’s good news. Your net worth just grew by however much your real estate asset(s) appreciated. 

If you don’t…you slipped 7.4% further behind on your journey to homeownership. That figure could well be 15% by the end of the year against the 2019 level. 

Time to ask the boss for a big raise.

Considering the real estate market gained 7.4%, and the S&P 500 gained 16% in 2020, perhaps Burry is right to raise an eyebrow at the Federal Reserve’s reported CPI of 1.4% for 2020.

Inflation on the global stage

A hallmark of inflation is that the prices of commodities start to rise, particularly in assets where production of the supply has bottlenecks or lead times, and therefore grows slowly.

To understand this better, it can be helpful to think of the dollar itself as an asset. 

After all, the global community certainly does. That is why many foreign governments hold large reserves of U.S. dollars. 

Relative to other countries, the U.S. has enjoyed decades of growth and stability. Subsequently, the U.S. dollar has proven to be  a reliable store of value, particularly relative to other volatile currencies.

However, the DYX –a measurement of the dollar’s value compared to a handful of other foreign currencies – has been melting like an ice cream cone on a hot summer day.  


Because the U.S. dollar is the global reserve currency, a big slide in the DXY could prove especially catastrophic if foreign governments were to liquidate their holdings.

We don’t know, J.Pow, but those inflation numbers just aren’t checking out. 

Why real estate thrives during periods of inflation

When it comes to inflation and real estate value, it’s a classic case of ‘a rising tide raises all boats.’

From an investment standpoint, an asset with a fixed or slow-growing supply, but steady or increasing demand, will gain value over time.

Building a house requires permits, materials, construction time, and financing. The growth in supply tends to be slow. 

Constricting supply growth either further, the price of building materials for new homes have skyrocketed over the last year. 

The cost of lumber, for example, exploded 130% to historic highs in 2020 alone. Steel and concrete are also experiencing sharp price increases.

That adds additional challenges to expanding supply. Meanwhile, thanks to the work-from-home and ecommerce revolutions, demand in several real estate sectors has skyrocketed.

Money printer go ‘BRRR’

Now, let’s sprinkle in that extra three trillion dollars that got injected into the economy in stimulus measures. That alone would have led to significant gains in the real estate market. 

Let’s say we have a total economy worth $1,000,000, and a total of 10 houses in the real estate market worth $10,000 each. 

If the same economy then prints another $1,000,000 – without a corresponding increase in economic output – the total economy is now worth $2,000,000. Those same houses are now worth $20,000. 

Good if you owned one of those houses. Less than optimal if you didn’t, particularly if your bosses didn’t give you a 100% raise during the same time. 

The U.S. did not double the amount of dollars in circulation like in the example above. But it illustrates the point that real estate appreciates in tandem with inflation.

Interest rates, the accelerant

Despite shutdowns and high levels of unemployment, the real estate market gained more value in 2020 than it had in any other year since 2005. 

Part of that is that the borrowing costs of money have been historically low. Borrowing money is easy and cheap, enticing more potential buyers into the market. 

Institutional investors take advantage of these low rates by borrowing at 0% and investing that money into assets that yield 5% or more – like the real estate market, because hell, why not? 

Real estate is an attractive investment to whales, because it can generates income in the form of rent from the jump. Rent prices increase with the value of the leased real estate. (Brace yourselves, renters). 

By setting up REITs, institutional players can optimize yields through corporate tax exemptions

Given that the  Central Bank recently said they wouldn’t hike interest rates in the near term, the real estate market’s value appreciation is slated to continue as interest-free investment capital flows in.

This adds more weight to the demand side of the equation.

Get your slice

You may have caught on already, but there are winners and losers when it comes to inflation. 

The winners own assets and investments that appreciate substantially without any extra effort on their part. 

Unfortunately, waged and salaried workers whose pay doesn’t keep pace with rising commodity prices get pinched. Their purchasing power is increasingly eroded. The average 2–3% annual raise fails to reconcile the decline of the dollar’s purchasing power.

With indicators of inflation already flashing code red and graphs moving into exponential inclines, investing in real estate can protect your net worth against erosion in value.

Even if you’re not in a position to buy property, you can enjoy the market’s gains by investing in REITs like HappyNest, for as little as $10. From there, it’s entirely up to you how much you want to invest, every dollar of which carves out your stake in the real estate market and its future gains.

Getting on the right side of inflation

HappyNest generated 5%+ returns every quarter – for a total of over 20%  compounded annualized return – for its shareholders in 2020.

Our shareholder ROI outpaced both the S&P 500 and the overall real estate market’s gains, even accounting for the influx of capital and inflation. 

As HappyNest’s portfolio of properties appreciates in value, so will your investment. While investing always comes with risk, HappyNest’s properties currently have reliable tenants like FedEx and CVS on 8- to 10-year lease agreements. We don’t anticipate any interruption of dividend payments. We expect to have ample time to react in the event of an unexpected vacancy. 

Learn more about the properties in our portfolio.

Study finds money can buy happiness after all – but it’s getting more expensive

What is the relationship between money and happiness?

There’s an oft-quoted 2010 study which found that reported levels of happiness started to taper off once a $75,000 salary had been reached.

In other words, while higher income levels still reported higher levels of happiness, the degree of increase got smaller further up the income chain. 

For years, $75,000 was seen as the happiness sweet spot. 

Earlier this year, a new study that surveyed over 33,000 people – and over 1.7 million experiences between them –  contradicted this finding. 

According to the follow-up study, reported levels of happiness and well-being continued to trend upward at an equal incline and in tandem with income level, well beyond the inflation-adjusted salary of $80,000 (what the researchers determined as the 2021 equivalent of $75,000 in 2010). 

So what happened? Did we get greedier? More superficial and materialistic? Grow further apart? Why do money and happiness have a tighter correlation now than they did in 2010? 

The problem with comparing these studies is that it’s comparing apples and oranges. If anything, it raises further questions about the relationship between money and happiness. 

To better understand that relationship, we must first consider what happiness is. For that, we turn to the world of psychology. 

What is happiness?

Numerous studies have found that happiness itself isn’t directly based on money. But money is a variable in many of the things that are.

For example, interpersonal relationships have been found to be a central tenet of happiness, but financial problems are among the leading causes of divorce. 

Marriage isn’t the only kind of relationship of course. Regardless, the amount of time available to spend with friends and family can certainly be influenced by income. 

Health is a component of happiness, but access to health care and a nutritious diet are also correlated with income level. 

In many ways, money impacts how much of our time and energy can be devoted to the things that make us happy.

Lessons from the world of psychology

To some, happiness means jet-setting around the world, having new experiences, and meeting new people.

To others, it includes watching some rugrats grow up in a happy, healthy home that can support all their needs. 

Considering the differences from person to person, expressions of happiness as a starting point introduce too many variables to control for. 

So we’re going to slide right on over to the opposite side of the spectrum – the absence of happiness – as the starting point. What characterizes an absence of happiness?

When we consider a host of psychological conditions associated with happiness (or a lack thereof), such as depression and anxiety, we find that they tend to have some commonalities. They may have different symptoms, but almost all of them have roots in a lack of control over circumstances and a sense of hopelessness.

At its core, hope is based on progress. Progress is forward-facing and requires a genuine belief that you have some efficacy over outcomes.

Without a sense of personal efficacy and progress, it’s hard to imagine anyone reporting that they feel happy. 

The inflation rate of happiness

Money gives us control over many of life’s circumstances. Being able to pay for housing, bills, food, car repairs, and other needs eliminates major stressors that detract from a personal sense of well-being. 

Money is also a tool that enables us to pursue our own version of happiness, whether that be more time with family and friends, traveling around the world, or getting a new car. 

Consider this: In 2010, the average cost of a new home in the U.S. was just shy of $279,000. That’s about 3.7x the salary of someone making $75,000.

In 2021 to date, that figure looks much different. The average cost of a new home clocks in at $408,800. Even with the “inflation-adjusted” income of $80,000, that’s a 5.1x multiple – a difference of over 33% – in just eleven years. There’s little sign this trend is slowing. 

And it’s not just real estate. Other living expenses have also continued to climb faster than inflation rates capture

It makes sense, then, that the reported level of well-being continues to rise well beyond the $80,000 benchmark. The benchmark has less buying power. 

The price of happiness, it seems, is a moving target. Americans are increasingly falling behind the level at which they feel financially secure and fulfilled. They continue to grapple with financial stressors at higher and higher income levels.

Solving for why

But why? They did all the right things. They went to college, got the job, worked hard, climbed the ladder, saved…the whole enchilada. This raises questions around personal success, fulfillment, competence, and progress – questions that address the ‘why’ the two studies arrived at different conclusions.

After all, few people have influence – or even a real understanding – over macroeconomic trends that impact their finances. An inability to meet milestones when in reality, the goalposts are moving further away, is a recipe for hopelessness.

Perhaps the relationship between money and happiness hasn’t changed fundamentally. It’s just that happiness has gotten a helluva lot more expensive.

Getting off the treadmill

So are we stuck on a treadmill of existential dread, falling further and further behind our goals – and our shot at the pursuit of happiness?

Not necessarily. The key lies in understanding that the 9-to-5 trajectory, on its own, has diminishing returns. Acknowledging this reality – and strategizing around it – is the first step in exerting more control over your financial life and future.

Warren Buffet says: “If you don’t find a way to make money while you sleep, you will work until you die.”

The best way to grow money while you sleep is by making your money work for you. 

Many people feel they can’t afford to invest. This is a critical fallacy, because in reality, they can’t afford not to. It’s a common misconception that investing is for people who wear monocles and have chauffeurs. Thanks to technology, investing is becoming increasingly democratized.

HappyNest and happiness

HappyNest, for example, only needs you to invest $10 to get started. That money starts to generate more money for you immediately. By reinvesting your gains, you can reap the wealth-building benefits of compound interest and turbocharge your nest egg’s growth. 

HappyNest is a low-risk investment that produces steady returns every quarter. With two commercial properties currently leased by stable tenants like FedEx and CVS for 8- to 10- year terms, you can enjoy consistent dividend reinvestments (or payouts) as well as the appreciation of the real estate, an investment class dominated by the wealthy due to its capital intensive barriers of entry.

Starting and growing a nest egg offers control over your finances, peace of mind through stability, a sense of progress toward financial goals. Perhaps most importantly, it offers hope for the future – a solid foundation for the pursuit of happiness. 

Because the best thing about having money…is not having to think about money.

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