Real Estate Hedge Against Inflation? Housing And REITs Did Better Than Inflation, NCREIF Not So Much

Now that inflation has reared its ugly head, how can investors protect themselves against the ravages of inflation?

Back in 1977, Fama and Schwert showed that housing acted as a hedge against inflation. Over the past year as inflation has reached its highest levels in 40 years, home prices have outpaced inflation by 19.08% to 6.8%.

How about real estate investment trusts? The NAREIT all-equity index rose by 35.6% YoY while inflation rose at 6.8%. The S&P 500 index rose 28.9% YoY.

Of course, the NAREIT all-equity index has a beta of 1.276.

How about the NCREIF All-property commercial real estate index? For Q3, the NCREIF property index rose by 5.22%, less than the most recent inflation reading of 6.8%.

So for the past year, housing has beaten the pants-off inflation, REITs have earned a higher return than inflation, and the NCREIF index seems to be rising slower than inflation (but with its lag problems, I anxiously await the Q4 numbers which should be higher.

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