Owning a home is a great way to protect yourself from the effects of rising inflation
You have probably heard about rising inflation if you have been watching the news today. Inflation right now is at a 40-year high. The National Association of Home Builders (NAHB) claims that:
“Consumer prices accelerated again in May as shelter, energy and food prices continued to surge at the fastest pace in decades. This marked the third straight month for inflation above an 8% rate and was the largest year-over-year gain since December 1981.”
Your daily life is probably being impacted by growing inflation as prices for groceries, gas, and other items rise. Your pocketbook may feel the pinch as a result of the rising cost of goods, so you may want to reconsider any major purchases you had in mind to be sure they are still justified.
If you've been considering buying a house this year, you may be debating whether you should move through with your plans or whether it would be better to put it off. Here are some ways that homeownership can assist you fight inflation-related price increases, though the answer will vary depending on your particular circumstances.
One of your largest monthly expenses is made more stable by owning a home
According to Investopedia, prices generally increase during times of significant inflation. That holds true for a variety of goods and services, including housing, food, and entertainment. The cost of homes and rent are both rising. How can you, as a buyer, defend yourself against rising prices? Home ownership is the solution.
Your housing costs, which are often your largest monthly expense, can be stabilized by purchasing a property. With a fixed-rate mortgage, your monthly payment is fixed for the loan's term, which is typically 15 to 30 years. James Royal, Senior Wealth Management Reporter at Bankrate, says:
“A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same. That’s certainly not the case if you’re renting.”
Your housing payment will therefore be a consistent sum that can help you stay within your budget even if other costs rise. Renters do not receive this benefit and are not shielded from growing housing expenses.
Purchasing a Stock that Has Historically Outperformed Inflation
Even if it's true that buying a home now costs more than it did even a few months ago due to rising housing prices and increased mortgage rates, you still have the chance to position yourself for a long-term advantage. This is because investing in an asset that exceeds inflation and often maintains or increases in value is a good idea during periods of high inflation.
The graph below demonstrates how, going all the way back to the 1970s, the average home price increase exceeded the average inflation rate, making homeownership a historically effective inflation hedge:
What does that entail for you, then? Due to the persistent supply and demand imbalance, economists predict property prices will continue to rise in the future. Any increase in the value of your home after you purchase it will increase your equity and net worth. You may rest easy knowing that your investment is sound because homes are typically assets that increase in value.
Therefore, if you can, it makes sense to purchase now before costs increase more.
Even with inflation on the rise, it makes sense to move forward with your home purchase if you have been considering it this year. You can invest in an asset that has historically outperformed inflation while also stabilizing your monthly housing costs. Let's connect if you're prepared to get going so that you can receive professional guidance on your particular circumstances when you're prepared to purchase a property.