Get This Inflation-Busting Asset at a Discount

Look Overseas for Bargains on This Excellent Inflation Hedge

Inflation is here.

Big inflation—8.6% on an annual basis by last count. Bigger inflation is coming.

And the winner in that is going to be real estate.

Not just any old real estate, mind you.

I would argue American real estate is facing some challenges. Inflation has forced the Federal Reserve to hike interest rates, which has in turn shoved mortgage rates substantially higher.

Borrowing costs for a house are now north of 6%. They’ll likely hit 7% this summer. In January, rates were about 3%.

Historically, a two percentage-point increase in mortgage rates has been enough to ice the housing market in America.

But there is another option here. What I would call a much better option in this particular moment: Shopping for real estate abroad in markets that have perennial demand from tourists and the new generation of footloose, Zoom Boom professionals.

Markets like Costa Rica, Portugal, Spain, Cabo and the Riviera Maya in coastal Mexico, and others.

We have a couple of facts working in our favor right now that make this strategy appealing.

First: There is a pending recession, and I don’t say that to scare you. This recession won’t be as long or as severe as the Great Recession. And recessions are opportunities. Always have been. Some of the absolute best real estate buys in the world came out of the Great Recession and the European debt crisis that emerged from that.

Beachfront properties all over southern Europe. Property throughout Dublin and across Ireland. Today, those properties have soared in value, creating life-changing wealth.

So, this recession could be the real estate gods smiling down upon those with cash to put to work in an asset that historically performs well in an inflationary environment.

Sellers are already beginning to consider a potential recession and higher interest rates, and those with weak finances are going to be looking to get liquid. That means we’re heading into a buyer’s market.

Second: The U.S. dollar is strong relative to other currencies. And it’s about to get stronger as the Fed further hikes interest rates this summer. Higher rates on the dollar mean it’s more appealing to investors who sell other currencies to own the buck. That puts downward pressure on these currencies.

Currencies operate just like a see-saw. One goes up, the other necessarily goes down. So, with the dollar going up, the euro, the peso, the pound, and others are going down relative to our greenback.

The upshot: We can use stronger dollars to buy a lot more units of a foreign currency, meaning that real estate in some overseas markets is increasingly cheaper in dollar terms.

It’s like buying properties on sale, even before you negotiate on price with the seller.

However, this is likely to be a short-term window, at least in terms of the dollar.

The buck is very likely to turn weaker as the recession approaches. The Fed would be crazy to keep raising interest rates into a recession. That would collapse consumer spending, which in turn would lead to a decline in profits on Wall Street that sees stock prices fall…which would fuel negative consumer sentiment…which would basically lead to a downward spiral feeding on itself.

I expect the Fed will be forced to cut rates later this year and stimulate the economy with free money, like it typically does.

So, that means there is a window that will be open for a few months, where sellers will be willing to negotiate, and where the U.S. dollar will buy more house than it otherwise would.

Where to look?

Well, I’d say the southern perimeter of Europe is a good bet right now: Portugal, Spain, Italy, and Greece.

All four of those countries had their debt struggles a decade ago. Memories are long. Talk of recession is hitting Europe right now and the European Central Bank is planning to raise interest rates.

That’s the kind of environment that will have real estate owners and developers eager to negotiate.

Moreover, the euro has come down sharply against the dollar in the last year. A year ago, each euro bought $1.21. Now, it buys less than $1.05.

Phrased another way: A dollar last year bought just 0.82 euro. Now, the same dollar buys more than 0.96 euro.

In practical terms, that means a 250,000 euro apartment in, say, Lisbon would have cost the equivalent of about $305,000 this time last year. That exact same apartment today is just $260,000. You get a $45,000 haircut, or nearly 15%, just because of the dollar’s strength.

And if you can negotiate a lower purchase price…well, you’ve made out quite well.

What I am saying is that now is the time to use the economic environment to your advantage. Grab properties in beach communities in Southern Europe, Cabo, and the Riviera Maya that always have persistent holiday demand.

For a very short time, the dollar tailwind, and the fear of recession, are in your favor.