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Homeownership Is a Great Hedge Against the Impact of Rising Inflation

Monday, July 4, 2022   /   by Julie Morgan

Homeownership Is a Great Hedge Against the Impact of Rising Inflation

Homeownership Is a Great Hedge Against the Impact of Rising Inflation | MyKCM


Homeownership Is a Great Hedge Against the Impact of Rising Inflation





If you’re following along with the news today, you’ve heard about rising inflation. Today, inflation is at a 40-year high. According to the National Association of Home Builders (NAHB):



“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.”


With inflation rising, you’re likely feeling it impact your day-to-day life as prices go up for gas, groceries, and more. These climbing consumer costs can put a pinch on your wallet and make you re-evaluate any big purchases you have planned to ensure they’re still worthwhile.


If you’ve been thinking about purchasing a home this year, you’re probably wondering if you should continue down that path or if it makes more sense to wait. While the answer depends on your situation, here’s how homeownership can help you combat the rising costs that come with inflation.


Homeownership Helps You Stabilize One of Your Biggest Monthly Expenses


Investopedia explains that during a period of high inflation, prices rise across the board. That’s true for things like food, entertainment, and other goods and services, even housing. Both rental prices and home prices are on the rise. So, as a buyer, how can you protect yourself from increasing costs? The answer lies in homeownership.


Buying a home allows you to stabilize what’s typically your biggest monthly expense: your housing cost. When you have a fixed-rate mortgage on your home, you lock in your monthly payment for the duration of your loan, often 15 to 30 years. James Royal, Senior Wealth Management Reporter at Bankratesays:



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.”


So even if other prices increase, your housing payment will be a reliable amount that can help keep your budget in check. If you rent, you don’t have that same benefit, and you won’t be protected from rising housing costs.


Investing in an Asset That Historically Outperforms Inflation


While it’s true rising home prices and higher mortgage rates mean that buying a house today costs more than it did even a few months ago, you still have an opportunity to set yourself up for a long-term win. That’s because, in inflationary times, you want to be invested in an asset that outperforms inflation and typically holds or grows in value.


The graph below shows how the average home price appreciation outperformed the average inflation rate in most decades going all the way back to the seventies – making homeownership a historically strong hedge against inflation (see graph below):


Homeownership Is a Great Hedge Against the Impact of Rising Inflation | MyKCM


So, what does that mean for you? Today, experts forecast home prices will only go up from here thanks to the ongoing imbalance of supply and demand. Once you buy a house, any home price appreciation that does occur will grow your equity and your net worth. And since homes are typically assets that grow in value, you have peace of mind that history shows your investment is a strong one.


That means, if you’re ready and able, it makes sense to buy today before prices rise further.


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The source of this real property information is the copyrighted and proprietary database compilation of the Southwest Florida MLS organizations Copyright 2022. Southwest Florida MLS organizations. All rights reserved. The accuracy of this information is not warranted or guaranteed. This information should be independently verified if any person intends to engage in a transaction in reliance upon it. The property information herein is derived from various sources that may include, but not be limited to, county records and the Multiple Listing Service and it may include approximations. Although the information is believed to be accurate, it is not warranted and you should not rely upon it without personal verification.
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