KEY TERMS TO KNOW

Inflation – Inflation generally occurs all the time, except during certain recessions. It is common for the price of goods and services to rise a few percentage points each year. That is why it’s important to account for inflation in financial planning.

Hyperinflation – Very high, often accelerating inflation.

Disinflation – Still inflation, but declining. One-year inflation is 5%, the next 4%, for example.

Stagflation – Characterized by slow economic growth and relatively high unemployment, or economic stagnation, which is at the same time accompanied by rising prices (i.e., inflation). This normally occurs in a unique situation, such as when inflation is confined to one critical resource, like oil.

Deflation – When prices go down and trend lower. Sounds awesome. It’s not.

Transitory Inflation – This refers to inflation that is real, but temporary. Some recent examples include: a container ship that clogs the Suez Canal, blocking 10% of energy flows; a Russian hacker who takes down the Colonial Pipeline, disrupting flows to Eastern Seaboard; and a Texas freeze that takes 20% of U.S. energy production off-line. In these cases, the price spikes were drastic, but temporary.

WHAT’S HAPPENING TO THE DOLLAR?

Iran says they are reducing their dependence on the US Dollar for regional and international trade. Russia, Saudi Arabia and China are now trading with Chinese Yuan. This is the biggest move against the US Dollar in recent history.

A week ago, France settled their first gas trade using the Chinese Yuan. This has historically been done using US Dollars. France's President Macron said Europe must reduce its dependency on the US. Inflation and volatility are creating a massive challenge to the US Dollar.

The dollar's global use makes it a more commercially viable currency, but without that appeal, it could become even weaker. When the US economy is strong, it attracts investments from all over the globe because it feels safe. If the entire world needs to feel safe parking their money, its understandable that home buyers do too.

FROM FORBES MAGAZINE: HOW TO USE REAL ESATE AS A HEDGE

Real estate makes the list for a number of reasons. First: the effect of inflation on debt. As a home price rises over time, it lowers the loan-to-value of any mortgage debt, acting as a natural discount. As a result, the equity on the property increases, but your fixed-rate mortgage payments remain the same.

Inflation also benefits real estate investors who are earning income from their rental properties, specifically property sectors with short-term lease structures like multi-family properties, because higher home prices often equal higher rent. If you’re able to adjust your rent up while keeping your mortgage the same, this can create the opportunity for increased money in your pocket.

Finally, real estate can be a good hedge against inflation because property values over time tend to stay on a steady upward curve. Most of the homes that hit rock bottom when the real estate bubble burst in 2008 were back to their pre-crash prices in less than a decade. Real estate investments can also provide potential recurring income for investors and can keep pace or exceed inflation in terms of appreciation.

The housing market is slowly repricing (see below). I’ve also included a chart just below as reminder of how housing has performed over several decades, since 1942 to be exact. We want home prices to be affordable, relative to income and wage growth. The destruction of demand with high mortgage rates contributes to the normalizing of home prices. When rates drop, especially due to low inventory, my bet is that we will see home prices rise again.