Is your home an investment? Given the rise in house prices, it looks like this is the case. But in the long run, that’s a whole different story. On the Motley Fool Live episode written on June 17, Motley Fool author Matthew Frankel discusses long-term housing yields and how they compare to inflation.
Matt Frankel: I see the one I wanted to get into. This is the most popular one, which says: “What has historically happened to real estate investments during inflation?”
If you’re talking about the long term, real estate tends to keep pace with inflation. The average increase in house prices over the past 100 years has been about three percent year on year. This is absolutely not what is happening now. But if you look at the past 100 years, the average is about three percent. The average inflation rate over the past 100 years has been around three percent. Over long periods of time, real estate, like most other commodities, tends to keep up with inflation.
Nothing to say about short-term profitability. Real estate is now the target of inflation. As I think Brian mentioned, one of the Brians, I’m just saying, Brian, I get it right, every house in their area has grown 20 percent. This probably applies to both Brians. Real estate is a real constraint on “supply and demand” right now, so you see inflation specifically affecting real estate, but in the long run, profits tend to normalize with inflation.