Hedging Against Inflation
Over the past couple of months, the news of rising inflation is fueling concern across the country. Currently, inflation is at a 40-year high. This is impacting household budgets the most as families try to make ends meet with less buying power. For potential home buyers, rising interest rates may cause worry that you will not be able to afford the home you want.
While these are all valid concerns, for those who are still able to finance a home, homeownership is one of the best hedges against inflation and may be worth stretching your budget to do.
The biggest advantage of owning a home in an inflationary period is a fixed-rate mortgage stabilizes your largest household expense. Most people budget 25-45% of their monthly income for housing. As costs continue to rise, rental rates will rise right along with them. These costs can far outpace salaries and increase the burden on families.
The second advantage is that home values historically outperform other assets in appreciation. Owning a home builds equity for the future that is based on a tangible asset. Even if the home loses value short-term, some studies show that over 7-years, homeowners should gain more equity than other investments.
The bottom line is that if you’ve been thinking about buying a home this year, it makes sense to act, even if interest rates are rising. This allows you to stabilize your monthly housing expense while potentially building equity for the future.