Homeownership As Inflation Control

Homeownership As Inflation Control

After a slight decrease in inflation coming from June, many people were expecting a lower report for the August data. However, inflation came in higher than expected, and sent markets in a tail-spin. One of the main talking points from the data release was that rents have increased the most on record since 1991. The month-over-month and year-over-year rental price numbers are a flash in the pan of the housing problem. While home prices and mortgage rates skyrocketing has forced many to rent, it is now just as expensive to rent than it is to own. However, renting comes with way less benefits, and way more pricing volatility. Here is how to use homeownership as inflation control, even with higher home prices and higher mortgage rates.

August Inflation Data

While we have seen and heard most news on the price of gasoline, the cost of shelter should be getting more attention. One of the largest increases in the Core CPI data from August, released in September, was the cost of shelter. There is a hope that these rental prices will moderate, like we have seen with home prices. However, there was a lot of hope about inflation coming down in general, and that proved wrong. Renters could be in for a trying time, as the cost to rent has increased to past the cost to borrow. Not to mention, owning comes with a significant basket of benefits, while renting has limited benefits.

Something To Watch Going Forward

A hidden issue in the rental inflation data comes from the longer-term rentals and leases. There are many leases that are long-term leases, or people who have rented for 3+ years, that are not experiencing the price increases. However, as more of these leases expire alongside traditional, one year leases, renters will see their rent increase. This might be the first increase for some longer-term renters, and could force many renters out of current locations. The problem arises with just how long do we see these rents rise. Will landlords raise rent again next year? That is a question you will not have to deal with through homeownership. This is yet another benefit of homeownership and reason why homeownership as inflation control can be beneficial.

Benefits Of Homeownership As Inflation Control

In August, we saw the cost of shelter increase by over 6.3% in the 12 month span. This is the highest stretch over any year since 1986. Projections show that this should top out around January 2023, at about 6.9%. This shows the sticky nature of inflation, and why rents could continue to rise alongside mortgage rates and home prices. The longer inflation sticks around, and especially in the housing market, the more aggressive the Federal Reserve will be. This aggressive action can lead to higher rates, which increase mortgage rates and decrease economic activity. Not only does shelter continue to increase, but as do food and medical services.