How To Beat High Inflation with a Home Purchase

How To Beat High Inflation with a Home Purchase

Inflation rates in the U.S. rose to unusually high levels over the past few years. While the Federal Reserve is making headway on bringing rates down, it can still feel like your buying power is being quickly eroded. High interest rates may have scared you away from buying a home, but a home purchase could actually help protect your money against inflation. Here’s how:

Inflation Raises Rent

Home prices are not the only things that jump during periods of inflation. Landlords are likely to raise rental prices as well. So while you put a home purchase on hold, you might be throwing more money down the drain on rent. If you buy a home with a fixed rate and a term of 30 years, your monthly payment will stay the same with no increases for the next three decades. That will definitely not be true of rental prices. Plus even as food, gas, and entertainment costs rise, you will have locked in your largest monthly expense, preventing it from ever jumping again.  

Home Values Appreciate Over Time

During times of inflation, it's smart to park your money in assets that are proven to increase in value in the long run. Single-family homes are just such an investment. They have a great historical record of gaining value. Inflation actually works in your favor once you are a homeowner as it pushes home prices higher, increasing your equity without any work on your part. As long as you plan to stay in the home for a significant amount of time, you can plan to see home value appreciation that will result in big profits when you finally decide to sell.

Debt Depreciates Over Time

While you are taking on a huge debt load by buying a home, inflation also works in your favor in this case as well. With the passage of time and inflation, the value of your debt depreciates. As incomes increase, that debt becomes a smaller percentage of your money equation. Meanwhile, your home value is increasing, making it a win-win scenario financially.

Cash Depreciates

You might think waiting and saving up more for a down payment is a better use of your funds, but inflation chips away at your ability to save. As fast as you put away money, inflation will erode its value. Converting your cash into a home purchase sooner than later can help preserve your hard-earned savings.

You can further protect your assets by locking in your interest rate when you apply for a home loan. While mortgage interest rates have bounced around slightly in recent weeks, the general trend has been upward over the past year. By asking for a rate lock, you avoid even higher interest rates and charges that are likely to come as inflation continues.

The bottom line is that high inflation rates might actually push you towards homeownership faster as a home is a safer investment than most other assets in such a climate.

If you are thinking of becoming a homeowner, give us a call today. We can help!