Inflation is wreaking havoc on the U.S. economy and, therefore, consumer pocketbooks.
Inflation in the U.S. over the past year has ballooned faster than at any other point over the last
40 years, reports AP Business writers Paul Wiseman, Anne D’Innocenzio, and Mae Anderson.
This has led to significant price increases in consumer goods, which is having a severe impact
on people’s purchasing power. That’s because inflation causes prices to rise and the value of
money to fall. So consumers end up spending more money on fewer goods.
This includes real estate where you get less house for a higher price as inflation soars. What’s
different about real estate, though, is that property ownership can actually be an insulator
against inflation.
Owning a Home Protects You From Inflation
A fixed-rate mortgage is protection from inflation. How?
Consider this. As inflation goes up, so do home prices and rent. Renters have to pay rising rents
as dictated by their landlords who are trying to keep up with inflation to cover their rental
property expenses. But, if you own your home and have a fixed-rate mortgage, your monthly
payment will never change no matter how much inflation rises.
Also, the increase in property values means an increase in the value of your biggest asset –
your home. The cost of your home remains the same as when you purchased it, but its value
increases with inflation. This means you are building more equity as well as a greater net worth
even as the costs of goods soar.
Now May Be a Good Time to Purchase a Home
If you are considering purchasing a home, now may be a good time to do so. As explained
above, homeownership provides stability and financial security during times of rising inflation.
Buying a home now locks in the current interest rate for the life of the loan, and, since real
estate is an appreciating asset, your investment now may pay dividends later if you choose to
sell.
That said, one of the key ways of fighting inflation is raising interest rates. Though rates are still
low, the Federal Reserve has been slowly raising its benchmark rate to slow inflation. In March,
it did a quarter-percentage point raise and recently ordered a half-a-percentage point raise for
June. This means interest rates on mortgages will continue to climb.
So before you jump into buying a home as a means of combating inflation, carefully review your
finances and current interest rates to create a realistic budget. Depending on the numbers and
your personal situation, now may be a good time to make that investment, especially as industry
experts anticipate home prices will continue to go up through 2022, which means the value of
property will continue to increase.
