The US real estate industry is being upended by historic inflation, soaring interest rates, and a looming recession. 2 experts at Goldman Sachs explain how.

• Real estate is often touted as a reliable hedge against high inflation, but that may be changing.
• Soaring prices, rising interest rates, and a potential recession are reshaping the US industry.
• Two Goldman Sachs industry pros revealed where they're seeing opportunities during a recent podcast.

Real estate is often touted as a dependable hedge against inflation, given landlords can raise rents, and property values tend to rise alongside other prices.

Two of Goldman Sachs' experts on the sector, Jeff Fine and Nora Creedon, explained why that's not necessarily true on the Exchanges at Goldman Sachs podcast in September 2022. They detailed how inflation, rising interest rates, and a potential recession are transforming the real estate industry, and revealed where they see opportunities for investors.

Here are Fine and Creedon's 8 best quotes, lightly edited for length and clarity:

1. Nora Creedon: "Real estate tends to be less correlated to other investments that you have. It tends to be less volatile than many other investments. It tends to have income aspects. And so, I think it needs to be a part of everyone's portfolio."

2. Jeff Fine: "Because there is so much capital that is chasing investments, we have not seen a material reset in asset pricing yet. We think it will come over time." (He was responding to Creedon saying the Federal Reserve's interest-rate hikes would lessen credit availability, reducing market liquidity and property values.)

3. NC: "Focus on property that has pricing power. Assets with really great demand from people who can pay for those assets. Meaning that they can pay the rents to either be in that multi-family community, or be at that hotel, or be in that great office building at Main & Main."

"Also, the type of real estate that isn't contending with significant new supply. The intersect of that strong demand and limited supply is really where you're going to see the pricing power that can offset inflation."

4. NC: "There's really never been a period in history where you could have inflation like this and not have significantly tighter financial conditions, whether that comes in the form of higher rates or less capital availability. That's not typically friendly to real estate." (She added that long lease agreements might restrict immediate price hikes, and highlighted "offsetting costs" to charging higher prices, such as having to pay higher wages to staff a hotel.)

5. NC: "The last few months, we've had a tremendous spike in mortgage rates to buy a home. And that has caused a real affordability crisis in the housing market." (She noted that higher monthly mortgage costs have helped residential landlords to raise rents, as the alternative option of owning a home has become less appealing or even infeasible for some people.)

6. NC: "We are certainly finding areas in residential, including niche areas of residential like student housing and age-restricted and senior housing, where we think there's tremendous ability to grow rents over time. And those are places that we're going to want to be in over the next five and 10 years."

7. JF: "Our belief is people are going back to work. There may be some changes to the work patterns. There may be more flexibility built in. There may be certain industries that care about in person, in office a lot less. But by and large, we still believe in the office tenant market."

8. JF: "This is a really interesting period that we're going into. We don't love them given the destruction, sometimes, that it can cause to the broader market. We talked about recession. We talked about rising rates. But as an investor, these are the moments you wait for. This is when the inefficiency creates opportunity."

Read more: 6 reasons why the US housing market is well-positioned to absorb a series of corrections as prices fall quickly