The Housing Paradox: Inflation, Illiquidity, and the Silent Devaluation of Real Estate
For the first time in modern history, the world is facing a monetary bubble rather than a traditional credit one. Unlike the speculative manias of the 1920s or early 2000s, today’s distortion is born from the mechanics of currency itself. The dollar has become both the measure and the distortion, expanding in supply faster than productivity can anchor it. The system looks healthy on the surface, but its strength is artificial. Liquidity, not innovation, drives the modern economy. As government deficits grow and debt service exceeds tax receipts, policymakers are left with one option: create more money. In doing so, they preserve short-term stability at the expense of long-term confidence.
This expansion of money supply has created a strange paradox. Asset prices rise, yet value does not. The illusion of prosperity masks a deeper issue: real purchasing power continues to erode. The result is a market that punishes savers and rewards holders of anything tangible. Housing has become the clearest reflection of this reality. It is simultaneously too important to fail and too inflated to rise meaningfully in real terms.
Housing prices remain high because the system demands they stay that way. A sharp correction would ripple through the balance sheets of banks, pension funds, and municipalities. Yet affordability has collapsed. With mortgage rates near multi-decade highs, the pool of qualified buyers is shrinking. Sellers refuse to discount, locked into low-rate loans from the last cycle. The market has frozen. What was once a dynamic asset class is slowly turning into an illiquid store of value.
In nominal terms, housing will likely continue to appreciate or at least remain stable over the next several years. Construction costs, insurance premiums, and replacement values are rising. These factors create a structural floor that prevents prices from falling in dollar terms. However, when adjusted for inflation, real estate is already losing value. A home that sold for five hundred thousand dollars in 2020 and is now worth five hundred fifty thousand has not appreciated; it has simply kept pace with currency debasement. The homeowner may feel wealthier, but their purchasing power has declined.
For investors, the implications are clear. Real estate is shifting from a speculative vehicle to a preservation asset. Those buying for price appreciation will likely be disappointed. Those buying for stable cash flow or utility will fare better. In a monetary bubble, assets that produce reliable income become the true hedge against inflation. Housing will not crash, but it will stagnate, and liquidity will continue to deteriorate.
For individuals looking to buy a home, patience and perspective are essential. Nominal prices may not fall sharply, but better entry points often appear when credit conditions tighten. Watching mortgage rates is critical. Sustained rates above six percent will keep buyers on the sidelines and volume suppressed. A meaningful drop in rates will signal the beginning of renewed liquidity, though that liquidity will likely return first to higher-income segments of the market. Buyers should focus less on the purchase price and more on the long-term affordability of the payment, understanding that the real return on a home in this environment comes from stability, not speculation.
For those who already own a home secured with a low mortgage rate, the best strategy is to hold and avoid unnecessary movement. Refinancing into a higher rate or attempting to upgrade could erode financial flexibility. Maintaining the current position while preserving liquidity elsewhere provides the greatest optionality. Homeowners in this position effectively hold a rare asset: fixed housing costs in a world of rising prices. That advantage compounds quietly over time.
For active investors, credit and employment trends are the signals to watch. Rising unemployment will eventually bring distressed selling, but it will occur in pockets rather than system-wide. When forced sellers appear, institutional buyers will be the first to step in. Monitoring institutional acquisition activity is therefore key. Large-scale purchases by REITs and private funds often precede policy shifts that inject new liquidity into the market. Inflation composition also matters. Shelter inflation that continues to rise faster than wages signals that real estate is still outpacing the median consumer’s ability to buy, which means liquidity is still constrained.
The deeper reality is that money supply growth has outpaced the credit system’s capacity to absorb it productively. That excess liquidity flows into assets like housing because they represent something tangible, even if illiquid. Nominal prices rise, not because value is being created, but because people are seeking refuge from a weakening currency. The outcome is predictable: higher paper valuations, lower real liquidity. Homeowners feel wealthier but have fewer viable exits. Buyers feel locked out but are spared from taking on inflated liabilities. Both sides lose some degree of freedom.
From a macro perspective, this represents a slow transfer of ownership from individuals to institutions. As the average homeowner becomes less able to buy or sell, large capital pools step in to absorb available inventory. The market evolves from one of individual participation to one of controlled ownership. In time, housing behaves less like a market and more like a utility. It stores value for those who already have it and excludes those who do not.
At Krieger Capital, we view this not as a temporary distortion but as a defining feature of the next cycle. Inflation will remain persistent, liquidity will remain tight, and housing will remain trapped between the two. Investors and individuals alike should prepare for a world where nominal appreciation masks real erosion, and where the true skill lies not in timing the market, but in maintaining purchasing power when liquidity disappears.
The opportunity in real estate will come not from betting on higher prices, but from identifying when credit conditions turn and being ready to act when they do. In that moment, those who preserved liquidity will have the advantage. The next wave of wealth in housing will belong to those who understand that price is an illusion, liquidity is power, and discipline is the real edge.
Sources
Federal Reserve Economic Data (FRED) - U.S. M2 Money Supply Reports (2025)
U.S. Census Bureau - Housing Market and Construction Cost Index (2025)
National Association of Realtors - Housing Affordability Report (2025)
Moody’s Analytics - Mortgage Rate and Credit Tightness Outlook (2025)
Harvard Joint Center for Housing Studies - “The State of the Nation’s Housing” (2025)
