How Homeownership Can Help Shield You from Inflation
If you’re following the news today, you’ve likely heard about rising inflation. You’re also likely feeling the impact in your day-to-day life as prices go up for gas, groceries, and more. These rising consumer costs can pinch 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 Offers Stability and Security
Investopedia explains that prices rise across the board during a period of high inflation. That’s true for food, entertainment, other goods and services, and even housing. Both rental prices and home prices are on the rise. So, how can you protect yourself from increasing costs as a buyer? The answer lies in homeownership.
Buying a home allows you to stabilize what’s typically your most significant monthly expense: your housing cost. If you get 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 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.”
So even if other prices rise, your housing payment will be a reliable amount that can help keep your budget in check. You don’t have that same benefit if you rent, and you won’t be protected from rising housing costs.
While rising mortgage rates and home prices mean buying a house today costs more than it did a year ago, you still have an opportunity to set yourself up for a long-term win. Buying now lets you lock in at today’s rates and prices before both climbs higher.
In inflationary times, it’s imperative to invest your money in an asset that traditionally holds or grows in value. The graph below shows how home price appreciation outperformed inflation in most decades going all the way back to the seventies – making homeownership a historically strong hedge against inflation (see graph):
So, what does that mean for you? Today, experts say home prices will only go up from here thanks to the ongoing imbalance in supply and demand. Once you buy a house, any home price appreciation that does occur will be good for your equity and your net worth. And since homes are typically assets that grow in value (even in inflationary times), you have peace of mind that history shows your investment is a strong one.
If you’re ready to buy a home on Martha's Vineyard or elsewhere, moving forward with your plans may make sense despite rising inflation. If you want expert advice on your specific situation and how to time your purchase, let’s connect.