Suppose we have stagflation....

[Bob Renthammer]

Apologies if there's already a thread on this....

Suppose growth slows and inflation pipes up in the coming years, giving us stagflation again. What will the effects be on real estate investors? How well did the older bigger pockets members do during the last time this happened in the 70s and 80s? Any tips on how to prepare for stagflation, should it come again soon?

For rental properties:

Presumably interest rates will rise, which should depress housing prices and possibly rents. So do we sell now when prices are high, figuring that we can buy back in later at lower prices? Do we refinance now while prices are high in order to pull out as much equity as possible for more purchases while rates are still low? Do we pay off loans to improve our balance sheets and cash flow by retiring debt?

For flipping:

Was flipping easier or harder in the 70s and 80s than it is now? Should we expect more or less of this activity under stagflation?

[Christopher Phillips]

@Bob Renthammer

Yes. Stagflation would be generally bad. Certainly at the supermarket.

But, it's not that simple.

Interest rates are artificially held low. So, they are not directly tied to inflation rates. Banks are overflowing with cash reserves.

The problem is that housing inventory is extremely low. New housing starts have suffered due to a lack of labor that left at the end of 2009-2010 market downturn.

Prices are based on supply and demand, not interest rates.

Rising interest rates will increase the cost of ownership, but it won't be able to change the supply problem.

Those that can afford it will continue to buy at the maximum of what their wages will afford. Those that can't buy now or at the margin will have to buy sometime else that fits their wages or not buy.

If wages are part of the driving forces behind a rise in inflation, then consumers and investors will still continue to buy at the limit of their income. Thus, continuing to drive up home prices in a market with tight inventory.

Rents will continue to rise along with the cost of housing, thus attracting investors.

hard money charges 12%-15% for flips. Doesn't deter investors.

Interest rates hit highs of 18%-19% in the late 70's and early 80's. People still bought real estate.

Stagflation will only be a problem if wages are flat to negative in the face of rising costs to consumers.