Homeownership Fights Inflation

Pretty much every news outlet, social media network, and coffee shop has been talking about inflation in 2022. As many of you all have experienced in your everyday life, prices of most things have increased significantly. The increase of gasoline, food, and utilities prices has drastically impacted the overall ability to afford your everyday lifestyles. The rising costs for consumers are pinching their wallets harder now than any other time in the past forty years. However, there is one area of price increases that you can avoid through homeownership, and that is your monthly housing payment. Here is how homeownership fights inflation.

Inflation Hedge In Real Estate

For people who have been thinking about purchasing a new home this year, there are probably a lot of questions you are asking yourself. A lot of questions over affordability have been risen, as home prices increase 21% from February to February in 2021 to 2022. Not only are prices affecting affordability, but so are mortgage rates as they have now ticked above the psychological level of 5%. However, for those who were lucky enough to purchase in the last few years, you were able to lock in your monthly payment at way below the current market rate. This is how homeownership fights inflation in your everyday life.

Investopedia details that during a high inflationary period of an economic cycle, prices rise pretty much across the board. This has proven to be true for the economy, as the prices of food and gasoline hit record highs, and entertainment and services are closely following. Now, even housing costs, whether you are buying a house or renting a residence, have accelerated almost as quick as anything else. As a buyer, you may be wary to buy a house as home prices have increased rapidly. However, the answer to fighting price and rate increases, both tied to inflation, is homeownership.

How Homeownership Fights Inflation

Buying a home will enable a homebuyer to lock in and stabilize your monthly budget for your housing expense. A fixed-rate mortgage allows you to lock in your monthly payment for the duration of your loan, which is often 30 years. This allows you to focus your budget on other prices that have increased, as well as let you build equity in a quickly appreciating asset. According to James Royal, Senior Wealth Management Reporter at Bankrate:

“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.”

As prices of pretty much everything you could think of have increased to levels we did not even see before the pandemic, finding some sort of safety from further increases is important. Your housing payment being locked in allows you to know how to budget for other expenses while you are still able to own your home and enjoy all the benefits of that. If you are unfortunate to not have been able to buy a home and are renting, you do not share the same benefit of safety in your monthly payments.

Price Appreciation For Owners

Price appreciation is one of the greatest benefits of homeownership during high inflation. Rising mortgage rates and home prices have led to higher costs to borrow and to buy than just a year ago, but that does not mean the opportunity to do it yourself is not there. Buyers still have the opportunity to set themselves up for a long-term wealth building asset. In fact, the way most people build wealth in America is through owning real estate. Not only does it allow you to lock in a monthly rate that you can set a budget around, but it also allows you to build wealth through price appreciation.

Homeownership Fights Inflation

The graph shows how the price appreciation of real estate has outperformed inflation historically.

In times of high inflation, investing your money in traditionally safe assets like real estate is a must. Real estate is genuinely viewed as one of the safest investments there is based on how home prices usually staying on the up and up consistently. The graph that is above shows how price appreciation of your home has outperformed the increase of prices based on inflation. Real estate has historically been a strong hedge against inflation, and that has been true this time around as well.