As I introduced in last month’s issue, there are 7 inflationary economic dynamics in play … any one, or a combination of more than one, will significantly impact your and my success in making decisions as we round out the year and look forward to 2022. Last month we covered the first four of the following … now we’ll complete the picture with 5 through 7.
- Wage Inflation
- Interest Rates
- Property Assessment Increases
- Unemployment Rate
- Government Financial Supports
- Supply Chain Blockages
- Post-pandemic Issues
You’ll agree that none of the above are under our control as residential real estate investors. What we can control is diligence to understand and monitor developments … and evaluate their real or anticipated effect on our property holdings, plus attract and retain quality tenants.
A confusing and complicating issue is the increased use of “transitory” when these issues are presented by governmental authorities and headlined in the press. As we flesh out the above 7 issues, it’s in our collective best interests to profile how fleeting (transitory) developing events are likely to pan out based on four perspectives.
- Trajectory – direction … up, down or static
- Velocity – the speed of change … real and anticipated
- Duration – how long is “transitory” … when will it change?
- Frequency – actual or expected recurrence.
Government Financial Supports
There have been a number of federal and state financial support measures triggered by the pandemic. Here are a sampling. There is no way to know for sure whether any or all may be renewed or extended. That said, there is evidence that frequency of doing so is often the case.
Child Tax Credit: Lawmakers are proposing to extend the benefit duration for one year. That’s in contrast to the Biden Administration proposal to extend through 2025 … while other Democrats argue that it should be made permanent.
Virginia Rent Relief Program: Originally designed to end at 12 months … subsequently extended to 15 and then 18 months duration … now capped at Governor Northam’s extension to June 30, 2022.
Pandemic Emergency Unemployment Compensation (PEUC): At introduction, this entitlement was to be of 24-week duration … subsequently extended to 53 weeks.
Economic Impact Payments: Three rounds of direct relief payments were provided during the initial phases of the C-19 crisis. With the Delta variant now in the mix, a recurrence of payments may be a response from lawmakers.
Supply Chain Blockages
All kinds of stuff are stuck in production or in transit across the globe. The result … shortages which stokes an upward inflation trajectory as evidenced by the recent surge in prices as buyers compete for limited supplies. Early on, supply chain blockages were described as a “transitory” state of affairs having a duration of less than a year. Now expert consensus is that the problems will exist at least through Q4 2022. That development will trigger higher inflationary pressures.
Post-pandemic Issues
As the economy recovers from the pandemic, the trajectory of demand will surge. This will likely lead to shortages of goods and services plus fuel higher prices for the items that are available … thereby increasing the velocity of inflation. Of course the “wild card” is when will the pandemic end now that the Delta variant, and perhaps others, has added to health recovery fears.
Takeaways
The 7 Faces of Inflation are real and present issues that must be considered as drivers of residential landlords’ decision making. The one “given” seems to be that singly, or in whatever combination, the foreseeable economic landscape presents a vision of inflation. Properly evaluated and managed may prove to be profitable for alert residential property investors.
Of course, please let me hear from you to share thoughts and insight.
At KRS Holdings, we stand by our core principles: Successful property management is based on simple math: Add value to your assets, subtract unnecessary expenses.
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