Owning a Home is the Best Hedge Against Roaring Inflation

March, 2022 showed record inflation when the Consumer Price Index (CPI) hit a forty year high of 7.9% and it doesn’t show any signs of stopping there. There is one way to help hedge against roaring inflation and that is to own a home. Additionally, there are several key components to follow in order to help protect your finances against rising inflation.

Inflation is at a 40 year high

It’s easy to see that prices are rising. You see them every time you go to the grocery store or fill up your car at the gas pump. But what has caused these high prices and rising inflation? In 2020 and in 2021, our government passed five COVID-19 stimulus packages during the pandemic to help the American people. Then, in 2021 they passed a $1.2 trillion infrastructure bill. Now whether you were for these bills or you were not, it does not matter. All of that spending has to be paid for, hence the inflation you are seeing right now.

It is also important to understand that the CPI that was released on March 10, 2022, does NOT account for the inflation resulting from the war in Ukraine or the current oil prices. Unfortunately, that means you will not see a decrease coming in the near future. When April’s CPI is released you will see inflation increase yet again as a result of the Russian Invasion and our current dependency on foreign oil.

You can Protect Your Money

While it’s important to understand why inflation is increasing, it is even more important to know what you can do to protect your money. Some experts say buying real estate RIGHT NOW – despite a hot and competitive market – is one of the best things you can do. Mortgage rates are still considered low right now and it will help protect you against rising rental costs. Plus, real estate only gets more valuable over time.

You are not required to have started your home search in order for you to lock in a low, fixed rate for your mortgage. In fact calling your local lender and getting pre-approved should always be your first step in homebuying. While yes, the 30-year fixed rate mortgage has increased since the beginning of 2022, the rates are still considered to be low; making this a great time to borrow money.  As inflation increases, mortgage rates will likely climb, so folks who lock in their rate now can avoid paying higher interest rates later. And of course, if and when interest rates fall in the future, your lender can refinance you into a lower rate.

Inflation is also making a big impact on renters. The cost of renting is already at an all time high, but with this record inflation, monthly rent is about to increase. The rising inflation tide lifts all boats, including rental prices. Homeowners are shielded from mounting rental prices because their cost is fixed, regardless of what is happening in the market. According to the CoreLogic Rent Report, single family renters saw a 12% increase annually in 2021, which is up from 3.9% in 2020. However, if you own a home, you will be protected from these increases.

Lastly, investing in real estate has always been a safe and secure way to protect your money due to appreciation. Property values increase over time which means tangible assets like real estate will only increase in value in the future. According to the Case-Shiller Home Price Index, home values appreciated (increased in value) 19.1% over the past 12 months on a National level.  Additionally, the FHFA showed that Pennsylvania homes appreciated by 45.4% over the past 5 years! Buying a home is a great way to spend your money during inflationary times.  

Inflation impacts Buying and selling

The rising inflation will also impact those who are selling their homes. Housing inventory is very low right now, but the housing market is hot. This means that there isn’t enough supply to keep up with the demand. Nationally, we are 6 million houses short and people are even struggling to find rentals. This is also what is causing prices to increase, and will unfortunately take years to recover.

The good news is, if you do pay more than asking price for a home, you can reach out to the Rebecca Foote Mortgage Team and ask about their Bid Over Ask Tool. This tool estimates how long it will take for your house to appreciate (to the value you paid for it). This will help you make a smarter financial decision when it is time to sell your home or when you are buying for more than asking price.

Secure your financial Future

Hopefully, you now have a better understanding about why inflation is at a forty year high, and what you can do to protect yourself against it. If you have any questions or are interested in getting a mortgage, reach out to the Rebecca Foote Mortgage Team and we will be happy to assist you.