What Is Stagflation? And Why Should Duplex Investors Pay Attention?

While listening to Marketplace the other day, I heard the word “stagflation”. And it wasn’t in a historical context. It was actually labeled as a possibility for the U.S. later this year.

What is stagflation, anyway?

No, it isn’t inflation during hunting season.

Stagflation occurs in the economy when two or  more negative economic problems that shouldn’t appear together show up at the same time.  For example, stagflation usually sees high inflation, stagnant or shrinking economic growth and rising unemployment.

Normal economics says that when prices rise, the economy is running hot and people are spending freely. And when growth slows, prices stay flat because demand dries up. Stagflation breaks both rules. It’s a rare but serious economic condition where three negative trends hit simultaneously: prices rise, a significant number of people are out of work, and the economy either stops growing or barely crawls forward.

The last time we experienced this was the 1970’s when the OPEC oil embargo caused prices to rise, inflation to hit double digits, and interest rates to follow suit.

What is causing economists to talk about it now?

The Bureau of Economic Analysis revised fourth-quarter 2025 GDP growth down to a meager 0.7% annualized rat. This is well below what most economists consider healthy growth. At the same time, the Fed’s preferred inflation measure, Core Personal Consumption Expenditures, is running at 3.1% year-over-year. This is meaningfully above the 2% target. Finally, unemployment ticked up to 4.4% in February, triggering the Sahm Rule recession indicator. (The Sahm Rule states when the national unemployment rate rises by half a percentage point (0.5%) or more above its lowest point from the previous 12 months, the U.S. is almost certainly already in a recession.)

Economists also point to “sticky inflation” around essentials like food and fuel as a key warning sign. These categories are less sensitive to interest rate hikes, making them persistently expensive. When consumers are forced to spend more on the basics, they cut back everywhere else. That ultimately slows economic growth while making inflation even more painful.

What impact does stagflation have on real estate?

Mortgage rates rise. Wages lag. So there’s less buyer demand and those that remain have more negotiating power. Properties tend to be on the market longer. However, stagflation doesn’t automatically mean a price crash. Many sellers choose to wait things out, meaning there are fewer duplexes for buyers to choose from, Less inventory helps keep prices up.

What about investment property?

Real estate investments tend to outperform stocks and bonds during stagflation, particularly when you’re leveraged with fixed-rate financing. Your loan balance stays the same while inflation causes everything around it to inflate. Rents rise with inflation, while new construction slows due to increased costs. This means investors can see higher returns on real estate than in other asset classes.

If you’ve financed your property with a fixed rate mortage, have reserves and are in a good location, a duplex is one of the best hedges you can have. However, you may also want to make sure you do adequate tenant screening, and familiarize yourself with eviction laws and procedures in your city.  As tenants struggle, they may fall behind on rent.  If you don’t already have one, you may want to find an attorney who specializes in evictions.

Let me know if you need a name.