It is evident that the cost of goods is increasing across all industries. Because of this, general concerns about inflation are rising. However, you can take financial measures to protect yourself from inflation. Investing in real estate now could help protect you against inflation in the future. How? Read on.
Everything costs more as inflation increases. Real estate is no exemption. On the other hand, the price of your house—a rising asset—will remain the same as the value of your home increases. More importantly, if you had secured a low-interest, fixed-rate mortgage. If you have cash and are anticipating inflation, you should consider where you invest it. By doing so, this will prevent its value from declining. Commonly, people consider housing to be a good inflation hedge. Purchasing a home can act as a hedge against inflation for the following reasons:
- The value of your home should increase along with inflation.
- Rent hikes won’t affect you. Rent prices rise with the tide of inflation. Given that your cost is constant regardless of market conditions, rising rental prices will not affect you.
- Your mortgage’s loan-to-value (LTV) ratio will decline. This happens as your home’s value rises over time. In other words, as your home’s equity increases, your fixed-rate mortgage payments remain the same.
“Home price appreciation has been a nice hedge against inflation, with home prices growing slightly faster than the rate of inflation when measured over an extended period of time.” – Greg McBride, Chief Financial Analyst for Bankrate
One significant benefit of homeownership is having your largest monthly expense remain stable. Even during uncertain economic times. You won’t receive that benefit and won’t be as protected from price increases if you continue to rent.
The Bottom Line
Even houses purchased before the Great Recession of 2008 are worth much more now than they did back then. Time evens out the peaks and demonstrates equity growth. In times of high inflation, it is especially critical to have a stable housing payment. In other words, owning a home protects you from the rising costs that inflation brings. Reach out to your trusted local expert to discover more. Let us get started on your path to homeownership.
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