Inflation And Home Buying

For those people who have been keeping up with the news recently, you probably heard about record high prices. Not only have home prices continued to break records, but consumer costs have increased due to labor and supply shortages. With everything seeming to cost more than it has before, even more than before the pandemic started, you may be worried about buying a home. Inflationary concerns are not something to joke around with, and has even led the Federal Reserve to begin to take steps before expected to tackle them. According to Investopedia, periods of high inflation, which we haven’t seen in decades, lead to increases in price across the board. Home price increases is just one aspect of inflation. However, here is why inflation shouldn’t stop your home buying in 2022.

Homeownership Offers Inflation Hedges

With home prices having increased on average for years now, experts are predicting that this year will be no different. Expect more home price increases in 2022 as inventory continues to be a problem. As a buyer, this should be good news to hear if you are long-term and forward thinking. Buying in 2022 can lead to equity gains sooner rather than later because of inflation. Another benefit of buying a home during inflationary periods is that homeownership protects against rising costs. With consumer costs rising, such as food, shelter, entertainment, and goods and services, it is important to find a long-term solution to increasing prices. Buying a home today will protect you from tomorrow’s shelter increases, allowing for you to save money for other increases in price.

Being able to lock in a monthly rate and payment for the foreseeable future can help create stability and security in your budget. This allows for other price rises to not be as detrimental to your overall income. With a monthly payment that is consistent due to a fixed-rate mortgage, you are given peace of mind from shelter inflation. With inflation looking to remain elevated and above the Federal Reserve goal, having the ability to lock in a set payment is key.

Renters Lose With Inflation

For those who are renting, you are definitely missing out on your capped monthly payment. Rents have increased at rates that are greater than home prices have which is a direct hit to your pocketbook. With renting, you are not gaining equity and not benefitting from the security and stability of homeownership. If there was ever a needed incentive to buy, gaining equity is that reason. Considering equity, as well as low interest rates, and there is no reason to rent over buying. Rents are actually predicted to increase more than home prices in 2022 due to inflation. In fact, close to 89% of all rental properties are currently occupied. This leads to higher prices the same way as it leads to home price increases.

Rental Problems To Avoid

Being able to lock in low rates is also good for your buying power. With rates being at decade lows, home prices were bound to increase. However, because rates are low, your buying power hasn’t changed as much as you think. With renting, however, you are gaining no advantage and get nothing back when you go to move. Your payments are also subject to increases, and because everyone needs a place to live, you might get stuck paying. You may think you can just go rent somewhere else, but the rents everywhere has increased due to the mass amounts of occupancy. During high inflationary periods, rents are one of the first things to increase. Moreover, rents are one of the prices that increase alongside entertainment, consumer staples and more. Chief Economist Ali Wolf explains:

“If you have cash and are expecting inflation, you want to think through where you can put your money so it does not lose value. Housing is commonly looked at as a good inflation hedge, especially with interest rates so low.”