Homeownership and Inflation

Inflation headlines have flooded news channels and social media outlets in recent months.  This news combined with the rising interest rates is causing many would be homebuyers to put a hold on their real estate plans.  But is that a wise decision?

Truth be told, home ownership is a great hedge against inflation. Over the past couple of months, the news of rising inflation is fueling concern across the country. Currently, inflation is at a 40-year high. This is impacting tight household budgets, as homeowners try to make ends meet with less buying power. For potential home buyers, rising interest rates may cause worry that they will not be able to afford the home they want.

While these are all valid concerns, for those who are still able to finance a home, homeownership is one of the best hedges against inflation and may be worth stretching your budget to do it.  The biggest advantage of owning a home in an inflationary period is that a fixed-rate mortgage stabilizes your largest household expense. Most people budget 25-45% of their monthly income for housing.  As costs continue to rise, rental rates will rise right along with them. In the past year rent prices has seen historically high increases and the trend looks to continue.   These costs can far outpace salaries and increase the burden on individuals or families trying to make ends meet.

The second advantage is that home values historically outperform other assets in appreciation. Owning a home builds equity for the future that is based on a tangible asset. Even if the home loses value short-term, some studies show that over 7-years, homeowners should gain more equity than other investments. The bottom line is that if you’ve been thinking about buying a home this year, it makes sense to act, even if interest rates are rising. This allows you to stabilize your monthly housing expense while potentially building equity for the future.

Think about it, would you rather give your money to someone else with little or nothing to gain, or would you rather put that money (plus appreciation) towards yourself to spend in the future?

The real estate market is always changing.   Interest rates rise and fall, and inflation periods come and go.  One thing is always constant, people will always need a place to live.